Aussie youth reveals hacks to save thousands of dollars in taxes every year
A young businessman has given a simple explanation of how Australians can potentially save thousands of dollars from their tax bills each year.
Jayden Peters, 22, recently shared his ‘real estate tricks’ on TikTok, where it quickly went viral with over a million views.
‘Here’s something I learned this year that they don’t teach you in school… Living in a rental property while paying for an investment property is the best real estate decision ever’ , I said.
Jayden Peters recently took to TikTok to explain how using negative gear can knock thousands of dollars off investor tax bills.
He explains that by being savvy when choosing a home loan and when deciding how much to rent an investment property, the income can be able to cover mortgage payments.
That being said, buyers still need the initial savings to cover the deposit, fees, rates, and any necessary repairs.
“So the people who live in your property are paying your mortgage first,” Mr. Peters said.
‘But not only that – and this is what they don’t teach you – the interest you pay on an investment property where you can claim your tax return, that alone is insane.’
‘A loan over 30 years on a regular mortgage… the interest will eventually be higher than the loan itself.’
‘So assuming you get a loan of $350,000 over 30 years, your interest could be around $370,000… and you don’t get any tax back.’
‘But if you get an investment property… you actually make money at tax time and get a free home out of it.’
As a caveat, the Australian Taxation Office only allows property owners to claim losses they have made from investment property.
According to real estate advisors Sound Property, the so-called ‘negative device’ concept is ‘an effective and legitimate strategy to maximize your tax deductions’.
They give the simple example: ‘An owner of an investment property pays $30,000 in interest a year, but only makes $10,000 a year renting it out’.
‘The remaining $20,000 can be deducted from their taxable income’.
If a real estate investor understands the interest rates on their home loans and how much they charge in rent, the income could cover the mortgage — and if not, potentially thousands of dollars. la gets a tax break.
The strategy is generally most effective when used over the long term.
Profits made on the eventual sale of the investment property could offset those initial losses – and hopefully exceed them – and the investor received a tax break in the process.
Peter Koulizos, lecturer in real estate finance at the University of Adelaide, explains: “The aim is to limit losses up to the point of sale – and a negative pass is a good way to do that.
‘Negative gear works if the amount the investor earns from the property’s capital growth is greater than the loss they make from the rent shortfall.’
‘Allows investors to deduct losses from their taxable income… a much larger proportion of the population can buy investment property. This helps increase the number of rental homes available on the market.’
What is negative gear?
Preparation is when you borrow money to invest and it is often talked about in the context of investment properties.
A property is positively oriented when your rental income is higher than interest payments and other costs associated with the property (e.g. residential, council and water rates).
A property is negatively impacted when your rental income is less than interest payments and other costs associated with the property.
The main benefit of using negative leverage is that any net rental loss you incur during the financial year can be offset against other income you earn, such as your salary.
This reduces your taxable income and the amount of tax you pay.
Source: | This article originally belonged to Dailymail.co.uk