FINANCE
where all these expenses can be recorded , resulting in paying much less tax . In other words , record all eligible expenses that can be deducted from your taxable income for significant tax savings .
Accumulated losses
When you have built a property portfolio in an entity , and that entity has losses for the first couple of years , you can track those losses in the annual financial statements of the entity that holds the properties . These accumulated losses can be written off against the entity ’ s future profits , and thus , you ’ ll pay significantly less tax .
Offsetting accumulated losses is a widely-recognised and valuable tool to reduce tax liability and maximise long-term financial gains . Many investors and tax experts consider it a key benefit of holding properties within an entity . without selling the property or paying capital gains tax . Many property investors use this to build massive property portfolios without paying a cent tax . When you refinance , your interest expenses go up , which is a tax-deductible expense that reduces the taxes you need to pay .
It is very possible to stay close to breaking even while you experience capital growth ( unrealised gains ) with your property portfolio . Basically , you have your rental income as the income and the interest portion of the bond , levies , rates , management fees , maintenance , insurance etc ., as the expenses .
Maximising unrealised gains and minimising realised gains
Then there is , of course , refinancing . The beauty of refinancing is that you are not taxed on refinanced funds . You are using unrealised gains ( capital appreciation of the property )
71 APRIL / MAY 2023 SA Real Estate Investor Magazine