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Tax is key in the new-versus-old property debate for investors

Dec 09, 2016

REAL estate investors who buy new instead of old property can save more than $5000 a year from tax deductions and other benefits, but are being warned to crunch all the numbers before taking the plunge.

Property investment and accounting firm Nieuvision says new property delivers thousands of extra dollars of negative gearing and other tax incentives each year, while lower maintenance and repair costs save investors more money.

Tax deductions depend on the property and the investor’s tax rate, but are bigger for newer assets.

“Despite the benefits of negative gearing, we find that older-style properties cost investors on average about $80 per week or $4000 each year,” says Nieuvision director Mel Nieuwenhoven.

“However, investors can end up $20 to $30 in front each week, depending on their tax bracket, by purchasing new property instead.

“Investing in an older-style home on a large block with a big backyard may be appealing, but can come with higher stamp duty, fewer depreciation benefits and significant ongoing maintenance costs.”

Investors should think logically and avoid making emotional moves because investing is a financial decision, Nieuwenhoven says.

media_cameraNieuvision’s Melissa and Rick Nieuwenhoven warn investors to be wary about off-the-plan apartments.

Dr Adrian Raftery, Deakin University’s course director in financial planning, says if new and old properties are identical in price, size and location, it makes more financial sense to buy new.

“However, the reality is that the price of a brand new property is a lot higher,” Raftery says. Bigger tax deductions may be offset by the higher purchase price, larger interest payments, strata fees and building funds, he says.

“You really have to do your numbers because there can be bargains for older properties. Look at quality of workmanship. There’s a lot of 10-year-old properties that look 30 or 40 years old that probably won’t last 80-90 years like that ones that are that old now.”

Raftery says the biggest tax benefit from property comes from deductions that cost you nothing, such as depreciation of fixtures and fittings the writing down the value of the building cost at 2.5 per cent a year.

“If the building shell costs $300,000, you are getting an extra $7500 tax deduction every year for 40 years, plus probably $7000-$10,000 of deductions for the new fixtures and fittings if it’s one or two years old,” he says.

 

Investors should be careful about buying apartments amid an ongoing construction boom that has sparked warnings about oversupply in several capital cities.

Nieuwenhoven says investors should be wary about off-the-plan apartments, which can take longer to build than they expect.

“They also are generally sold for a premium,” she says. If you’re set on buying an apartment, choose an established one that is still relatively new so you get the good depreciation benefits, she says.

 

Article pblished in here on NT News on 9 December 2016

Originally published as Save $5000 a year on property

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