Young Aussie unveils hack to save thousands of dollars in taxes every year

A young entrepreneur has given a simple explanation of how Australians can potentially save thousands of dollars on their tax bills each year.

Jayden Peters, 22, recently shared his “real estate hack” on TikTok, where it quickly went viral with more than a million views.

“I learned something this year that school doesn’t teach you… Living in a rental while paying for an investment property is the best real estate decision you can make,” he said.

Jayden Peters recently took to TikTok to explain how negative gearing can take away thousands of dollars in an investor's tax debt

Jayden Peters recently took to TikTok to explain how negative gearing can take away thousands of dollars in an investor's tax debt

Jayden Peters recently took to TikTok to explain how negative gearing can take away thousands of dollars in an investor’s tax debt

He explained that by judiciously choosing a home loan and deciding how much to rent an investment property for, income could potentially cover mortgage repayments.

That being said, buyers still need initial savings to cover down payment, fees, installments, and needed repairs.

“First, the people who live in your property pay your mortgage,” Mr Peters said.

“But not only that – and they don’t teach you that – the interest you pay on an investment property is tax reclaimable, that alone is insane.”

“For a 30+ year loan on a regular mortgage…the interest rate ends up being higher than the loan itself.”

“Let’s say you get a $350,000 loan over 30 years. Your interest could be around $370,000… and You don’t get any taxes back.’

“But when you buy an investment property … you literally generate money at tax time and get a vacant house out of it.”

There is one caveat: the Australian Taxation Office only allows a property owner to reclaim the loss they have made on an investment property.

Known as “negative gearing,” the concept is “an effective and legal strategy for maximizing your tax deductions,” according to real estate consultant Sound Property.

They give the simplified example: “An owner of an investment property pays $30,000 a year in interest but only makes $10,000 a year from renting.”

“The remaining $20,000 can be deducted from your taxable income.”

If a real estate investor is clear about their mortgage rate and rent, the income could cover the mortgage -- and if they aren't, there are potentially thousands of dollars in tax breaks available

If a real estate investor is clear about their mortgage rate and rent, the income could cover the mortgage -- and if they aren't, there are potentially thousands of dollars in tax breaks available

If a real estate investor is clear about their home equity interest rate and the amount of rent, the income could cover the mortgage — and if it’s not, there may be thousands of dollars in tax breaks available

The strategy is generally most effective when used over the long term.

The profit realized on the subsequent sale of the investment property could cover – and hopefully exceed – these initial losses and the investor has received tax breaks in the process.

“The aim is to limit losses until it’s time to sell – and negative leverage is a good way to do that,” explains Peter Koulizos, Lecturer in Real Estate Finance at Adelaide University.

“Negative gearing works when the money an investor makes from a property’s capital growth is greater than the loss they make from lost rent.”

“By allowing investors to deduct losses from their taxable income, a much larger proportion of the population can buy an investment property. This is helping to increase the supply of rental housing on the market.’

What is negative gearing?

Gearing is when you borrow money to invest and it is usually spoken in the context of investment property.

A property is positively biased when your rental yield is greater than your interest repayments and other property-related expenses (such as shift taxes, community and water charges).

A property is negatively biased when your rental yield is less than your interest payments and other property-related expenses.

The main benefit of being negatively leveraged is that any net rent loss you incur during the fiscal year can be offset against other income you earn, such as B. your salary, can be offset.

This reduces your taxable income and your tax liability.

Source: Commbank

Source: | This article originally belongs to Dailymail.co.uk

https://www.soundhealthandlastingwealth.com/celebrity/young-aussie-reveals-hack-to-save-thousands-of-dollars-on-tax-every-year/ Young Aussie unveils hack to save thousands of dollars in taxes every year

Brian Ashcraft

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