tax deductibility related to no of IP's

[ddan]

I cant find a post on this, pls point me to one if it exists.

This is all a bit jumbled in my head, so apologies in advanced, hopefully this makes sense to someone and they can explain it

Can someone in the know pls give me a breakdown of what happens come tax time. I have bought my first two IP's in the last 6 onths, so the next tax return for me will involve tax deductions for IP costs (interest, maintenece etc) + depreciation. I did all these calc's pre-purchase and both IP's are cashflow neutral/+ve (individually).

My question is how does this work the more IP's you buy? Are the calcs for each property you buy treated individually or is it the more propertys you buy there is some sort of sliding scale? IE:
IP1 ends up giving you back $5K
IP2 ends up giving you back $7K
IP3 ends up giving you back $3K
etc
etc

does it just continue on like that, to a point where you are getting back more than you have paid in tax? or is it some sort of sliding scale that just gets you to paying $0 tax?

Would love this explained if possible....Thanks!!

 

[Terry_w]

Do a separate calculation for each property.

Add up the result and add it to your other income (less non property deductions) and that will be your taxable income for the year.

 

[Propertunity]

...does it just continue on like that, to a point where you are getting back more than you have paid in tax?

You NEVER get to this point, EVER

You may get to a point of paying $0 tax or even being able to carry forward tax losses from one year to another to be used when you do have a year where you have a taxable income.

 

[ddan]

Oh wow, so essentially I can accumulate IP's to the point where Im paying next to no tax??

that doesnt sounds right

so why dont more people do this? and why didnt i do this earlier

Thanks for the clarification chaps!

 

[Propertunity]

Oh wow, so essentially I can accumulate IP's to the point where Im paying next to no tax??

Yes, in theory.

....so why dont more people do this? and why didnt i do this earlier

Because it means that your negative gearing losses are greater than or equal to your entire taxable income. So what are you going to eat to keep alive?

......and you are going to start failing the banks' serviceability tests with little to no taxable income, so under the "responsible lending" environment, they will not want to give you any more money to buy houses

 

[Paul@PFI]

Income tax is based on taxable income. Rental income and deductions affect taxable income. One IP can increase it if +ve geared and another may reduce it if -ve geared.

In theory a taxpayer can have zero income from salary and create losses by ONLY having neg geared IP's. This occurs with people who become non-resident. The loss carries fwd and can offset future cap gains or future income if you recommence residency.

Just bear in mind that as income tax is a progressive scale that increases with income then losses from Ips can affect your MARGINAL tax rate. The more losses you have the less effective the later losses are as the tax rate will reduce. So a taxpayer on a taxable income of $20K with a new IP that has a loss of $3K may receive no additional tax refund since they are now in tax free threshold land.

Lenders wont want to lend more $ to someone in such a case as funding the loan may pose a concern. Also the older IPs may become +ve geared with time....

 

[Paul@PFI]

I cant find a post on this, pls point me to one if it exists.

This is all a bit jumbled in my head, so apologies in advanced, hopefully this makes sense to someone and they can explain it

Can someone in the know pls give me a breakdown of what happens come tax time. I have bought my first two IP's in the last 6 onths, so the next tax return for me will involve tax deductions for IP costs (interest, maintenece etc) + depreciation. I did all these calc's pre-purchase and both IP's are cashflow neutral/+ve (individually).

My question is how does this work the more IP's you buy? Are the calcs for each property you buy treated individually or is it the more propertys you buy there is some sort of sliding scale? IE:
IP1 ends up giving you back $5K
IP2 ends up giving you back $7K
IP3 ends up giving you back $3K
etc
etc

does it just continue on like that, to a point where you are getting back more than you have paid in tax? or is it some sort of sliding scale that just gets you to paying $0 tax?

Would love this explained if possible....Thanks!!

You cant receive a refund greater than tax paid. A refund is just that - Refund of the taxes prepaid. eg employer withholding. A PAYG variation may be more practical.

 

[perthguy]

Because it means that your negative gearing losses are greater than or equal to your entire taxable income. So what are you going to eat to keep alive?

If the properties were all new and had significant depreciation, that could contribute to the loss without affecting cashflow. Still, depreciation is not much to live on