Interest Tax Write Offs - Do I have this right?

[heathgt350]

Hi Everyone,

I was wondering if I could get a little sanity check with my understanding of the way Interest on IPs work for tax purposes.

Say I had a salary income of 100k and was paying 20k per year in Interest on an IP.

When it came around to tax time would it work like this:

Normally 100k @ around 35% Tax = 65k in the bank.

But with the IP Interest 100k minus 20k = 80k @ 35% tax = 28k tax, so 72k in the bank.

Do I have this even close to correct?

 

[Propertunity]

Yes, that would be correct IF:
1. Interest is your only expense, which it isn't. What about rates, mtce, PM fees, repairs etc?
2. You earned no rental income.

 

[Propertunity]

The sums would work like this:

INCOME
PAYG income = $100K
Rental income = $20K
Total income = $120K

EXPENSES
Interest = $20K
PM fees = $1K
Rates = $1.5K
PM fees = $1.5K
Repairs = $1K
Depreciation = $7K
Accountancy = $1K
Total Expenses = $33K

Taxable income = $120K - $33K = $87K
Less tax = whatever
Bank = $87K - whatever (tax)

 

[heathgt350]

Thanks for the quick reply Propertunity.

"Taxable income = $120K - $33K = $67K"

Do you mean Taxable income = $120K - $33K = $87K?

 

[Propertunity]

"Taxable income = $120K - $33K = $67K"

Do you mean Taxable income = $120K - $33K = $87K?

Yes Just as well I have an accountant and a bookkeeper LOL
(fixed 'em now)

 

[Apocalypse]

Hi Everyone,

I was wondering if I could get a little sanity check with my understanding of the way Interest on IPs work for tax purposes.

Say I had a salary income of 100k and was paying 20k per year in Interest on an IP.

When it came around to tax time would it work like this:

Normally 100k @ around 35% Tax = 65k in the bank.

But with the IP Interest 100k minus 20k = 80k @ 35% tax = 28k tax, so 72k in the bank.

Do I have this even close to correct?

What about the 20K interest you paid? Unless you are doing more exotic things like capitalising interest, that came out of your pocket...

100K at 08/09 rates : tax = 26K. 74K in bank

80K at 08/09 rates : tax = 18K. 62K in bank

This ignores any rental income, and other expenses.

 

[heathgt350]

Thanks everyone, I've never been super at numbers, but that helps me out alot =)