How to Define Your Rental Income
If you own a rental property and have realized that your income from rent is lower than the income from your other sources, then you may consider taking a mortgage to repay all or part of the debt. Doing this can also be termed as ‘defiscalculating your rental income’. However, if you are not sure whether you should do this or not, it would be better if you consult an expert. A professional will be able to guide you better on whether this is a good idea or not. Here are some tips on how to defiscalise your rental income:
The first thing that you have to do when you want to know how to deflate your mortgage repayments is to understand the nature of your rental property. You should have a clear understanding as to what rent covers and what other expenses you will incur on your property. When calculating your expenses, it is important to remember that you will also have to calculate your mortgage repayments. This has to be done separately from the cost of rent. It would be extremely foolish to let your property go unpaid while you struggle to make your mortgage repayments.
Once you have a clear understanding of your property, it is time to calculate the difference between your income from rent and the amount that is due from your mortgage repayments. Most property owners are of the opinion that the total income from rent should be greater than the total mortgage repayments. This is not always the case. Here are a few simple tricks on how to defrack your rental income.
The first trick is to use depreciation. Every year, take a depreciation deduction of up to 25% on your rental income. This can be further increased by making improvements to your property. This is completely tax deductible. Be sure to let your accountant know if any additional improvements are made to your rental property.
Next, look at capital gains. If your properties are still worth more than you paid for them, they can be tax deductible. This can be a very substantial savings, especially if you live in a high tax bracket. Look at the amount of time you have owned these properties and consider this as an itemized deduction when filing your income tax return.
The final way on how to defroster your rental income is to look at the interest cost basis of your mortgage repayments. All tax laws pertaining to mortgage repayments state that the mortgage repayments are considered income for tax purposes. As such, if you have a mortgage and you use some of the interest accumulated on the repayments to pay off other expenses, you may be able to further reduce the amount of tax you have to pay on your income tax return. In many instances, if you owe more on a property then the value of the property, the amount of tax will be less.
When considering how to defiscalise your rental income, one of the factors that you must think about is whether there is any depreciation on your properties. If you have not used your property for a number of years, you could be in a better position with regards to the amount of tax deductible you have to pay. You may also be able to depreciate in accordance with current market conditions. There are many different rules governing the amount of time you can use depreciation, so it is important to ensure that you are aware of all the rules before you begin to make any changes to your tax liability.
It is not all gloom and doom when it comes to how to deferalise your rental income. There are ways that you can use these rules to your advantage. Consider working out a realistic budget that you can live with. You should also consider cutting down on some of the luxuries in your lifestyle. Remember, before you start looking for ways of how to deferalise your rental income, you should first calculate just how much you earn and what tax bracket you fit into.