Tuesday 27 May 2014

TAX TALK




Have you ever been confused with the language used at tax time?
If you are new to investing, this little list of terms might help.



CAPITAL GAINS TAX or CGT-  A capital gain or loss is the difference between what it cost you to buy a property and what you receive when you sell it i.e. a capital gain is when you sell a house for more that you paid for it.
You pay tax on your gain and this gain forms part of your income tax and is not considered a separate tax.
Your "main residence"(family home) is generally exempt from this tax unless you rented it out or it's more than 2 hectares(5 acres) of land.

 

NEGATIVE GEARING- Negative gearing occurs when the costs of owning a property exceed the income it produces. These costs can include interest on the bank loan charges, maintenance, repairs and depreciation.  The opposite of negative gearing is positive gearing, when the property produces more cash flow than the holding costs and this profit is then added to your income.

 

DEPRECIATION- Simply, this is the decrease in value of an item over time. You can claim against the decreasing value of your investment. Keep in mind that the land usually appreciates and the building generally depreciates. There are some excellent companies around that produce “Depreciation Schedules” for your investment property.

 

EQUITY- This is the difference between what the residence is worth and how much you owe on it. Simply put, if your property is worth $500,000 and you owe the bank $300,000, then you have $200,000 equity.  As the loan is paid back your equity increases, which is a desirable situation to work towards.

 

There are many more real estate and tax terminologies' and I recommend you contact your accountant for a more detailed explanation of your situation.


Enjoy- Jenny Bosma from Vintage Realty.