Newbie - basic accounting/tax info

Hi all,

I have been reading for a while now, and I'm looking at purchasing my first IP. I've decided to start out fairly small.

I've been running through my figures and they look like the below. What I'm confused about is the negative/positive gearing side. The property should earn approx $16,640 per year (F), the interest repayments will be ballpark $13205 (G), there will be a difference of $3434 (H). I take it this means G will be tax deductible whilst I'll need to pay tax on H. Then there's the deductions aside from the interest (I). If (I) exceeds (H) I take it the difference is then tax deductible?

(insert confused face here)

Thank you for the assistance :)

A Property amount: $350,000
B Stamp duty: $17,000
C Other: $3,000
$370,000

D Deposit: $110,000
E Loan amount: $260,000 70% LVR

F Expected gross income: $16,640.00
G Expected interest repayments (4.60% @ 25yr) $13,205.40
H Difference between gross income & interest $3,434.60
I Tax deductible claims TBA
 
Your understanding Seems about right. But there are more pressing tax issues with your structuring.

Your calculations show you plan to have a principle and interest (p&i) loan. Do yourself a favour and read about interest only (io) with an offset account (not redraw).

Also borrow 80%, there are no more fees and you increase the size of your deductible debt. In the interim you can park the other 10% deposit into the offset so you will pay no more interest.

Good luck
 
Hi Jeffs, welcome to SS, this being your first post.

As well as bank interest you need to take into account ALL your other IP holding costs additional to the bank interest. These include, council rates, water rates, buildings insurances, landlord insurance, property management fees, repairs/maintenance, land tax, etc etc.

I hope this provides a clearer picture for you.



Hi all,

I have been reading for a while now, and I'm looking at purchasing my first IP. I've decided to start out fairly small.

I've been running through my figures and they look like the below. What I'm confused about is the negative/positive gearing side. The property should earn approx $16,640 per year (F), the interest repayments will be ballpark $13205 (G), there will be a difference of $3434 (H). I take it this means G will be tax deductible whilst I'll need to pay tax on H. Then there's the deductions aside from the interest (I). If (I) exceeds (H) I take it the difference is then tax deductible?

(insert confused face here)

Thank you for the assistance :)
 
Overthinking it.

Just think of the rental income field in tax return as a subtotal. Within it you include all rental income LESS all rental deductions. = The total for that rental field. If its negative it lowers assessable income (and tax) (-ve geared). If its +ve its a pos geared outcome. You can have one positive and other negative and the combined effect is the subtotal.

Cashflow can be different to taxable income however. Good example is depreciation from a QS report. Its a deduction with no cash outflows.
 
Thanks for the responses, somewhat clearer now.

Something like this?

A Salary $70,000.00
B Rental Income $16,640.00
C Total income $86,640.00

D I/O repayments $15,080.00
E Expenses $5,000.00
F Total expenses $20,080.00

G Taxable income $66,560.00

H Taxable income without IP $70,000.00
I Taxable income with IP $66,560.00
J Difference $3,440.00
 
And that $3,440 reduction in taxable income mean a larger refund of $1,187 (34.5%) So if we look at cashflows the property cost you $43 a week....If it increased in value 2% in the year that would have gone up $134 a week (b4 tax)

Now imagine if that IP that had say a further $6K of non-cash deductions for depreciation. The refund would be $3,257. So $2K of cash for no cash outlay. Now its costing you $3.50 a week to own. Unless you like 7-11 its hard to find a cup of coffee at that price.

The important issue is not buying any old property that earns rent. Buying the right sort of property that works for cashflow, tax, rental growth and capital growth all assist.

Have a look at the main Somersoft page and the trial PIA software. Its VERY good at analysis and projections. Well worth considering the licensed version for its features.
 
Thanks Paul ( and others ) for simple yet effective explanations and examples.'
Can also recommend highly the Somersoft PIA software - easy to use and lays it all out in black and white.
 
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