Geekzone: technology news, blogs, forums
Guest
Welcome Guest.
You haven't logged in yet. If you don't have an account you can register now.


47 posts

Geek
+1 received by user: 2

Subscriber

Topic # 161813 20-Jan-2015 17:15
Send private message

Just after some financial advise from anyone more knowledgeable than me in these matters.

We (my partner and I) have just bought a 4 bdrm home in Grenada Village, Wellington as we needed more space after we had a kid. Instead of selling our current 3 bdrm home, we're planning on giving it out on rent.

I recently came across something called 'negative gearing' when reading up on property investment.  Since we've got a much bigger mortgage now, any money i can get back is very helpful so keen to see if it would be applicable to my case.

I understand that i could use the losses from this investment to offset the income both of us get from our day jobs (we're both in the IT industry as permanent employees) but not sure how exactly that loss is to be calculated as there are two properties here only one of which is eligible to be used to claim for losses.

Would i need to separate the mortgages so i know exactly how much i owe for each one? This could mean using two different lenders as my current lender has said it's not possible to split it up like that.

 

Case Study for reference:

 

 

Penny, a property investor, buys a unit for $300,000, putting in $50,000 of her own money and borrowing the remaining $250,000. The interest of 7% each year is $17,500 and the weekly rent is $300 or $15,600 a year.

 

Ongoing costs including rates, water, insurance, maintenance and depreciation allowance are $2600 each year. After expenses, income for the year will be $13,000 ($15,600 minus $2600), equivalent to a net rental yield of 4.3%. However, annual interest repayments are $17,500, so she has actually lost $4500 during the year ($17,500 minus $13,000 = $4500).

 

 

The Result: Penny is eligible to receive a tax deduction of the loss accrued.

 


Any comments appreciated?



View this topic in a long page with up to 500 replies per page Create new topic
 1 | 2 | 3 | 4 | 5 | 6 | 7
11904 posts

Uber Geek
+1 received by user: 3858

Trusted
Lifetime subscriber

  Reply # 1218482 20-Jan-2015 18:23
One person supports this post
Send private message

I suggest you speak with an accountant.

This was relatively easy before some loon did away with Loss Attributing Qualifying Companies.

It's more complex now and telling the IRD "some people on Geekzone told me this would be OK and legal" is likely to carry less weight than "My accountant's advice was followed"!





Mad Scientist
19012 posts

Uber Geek
+1 received by user: 2469

Trusted
Lifetime subscriber

  Reply # 1218532 20-Jan-2015 19:47
Send private message

not anymore. since LAQC was abolished and building depreciation wiped it won't work. you can have a LTC but no difference from paying tax

331 posts

Ultimate Geek
+1 received by user: 61


  Reply # 1218599 20-Jan-2015 21:00
Send private message

To be able to claim any interest as a business expense you need to be able to directly connect those funds/loan with a business purpose.

That means the interest on your original loan to purchase your own home can't be claimed as a business expense as it was originally for an owner occupier purpose. Even if this property is now a rental it doesn't matter. 

Any new loans to buy your second property also can't be claimed as it's to buy your second home.

In the old days, you would set up an LAQC which then buys your original home and borrows 100% (using the equity in your second home so your actual LVR is lower). The interest then becomes fully tax deductable and because it's through an LAQC the losses are offset against your personal income.

The days of the LAQC are gone and the LTCs don't work in quite the same way - effectively negating one of their main advantages.

You could set up a trust and sell the original home to that. The trust borrows the full amount. However the losses are ringfenced within the trust.



4977 posts

Uber Geek
+1 received by user: 1323

Trusted
Microsoft

  Reply # 1218608 20-Jan-2015 21:15
21 people support this post
Send private message

some loon?

you want to negative gear against your salary because you don't want to pay tax?  Tax that pays for hospitals, schools, police, dole bludgers and defence?  who's going to protect you when the plebs with no money and houses need food and come raid you property?  Build bigger gated walled communities to hide behind and pay for private police.

yeah its totally fair that people can get rich off capital gains off their land/house, paying minimal tax, while plebs are in indentured servitude for the rest of their lives.
It just cannot be good for society that young people will have a 40 year mortgage, paying twice the price for a house, paying it off just in time to retire then die.

Baby boomers, be happy that you are going to watch your grand kids be forced to move overseas to brighter countries, make sure you have good bandwidth so you can watch them grow up over Skype and Facebook.

This illusion of continual growth raping the earths resources on a continual quest to make more money is insanely short sighted.  It must come to a grinding halt anytime soon....

the reality is that a lot of peoples kids are never going to be able to afford to buy a house because (some) people that own multiple houses are greedy, and NZers think they are amazingly smart and getting rich by selling overprices housing backwards and forwards between each other

Houses are a productive part of the NZ economy how?

No one will change this status quo because local government decision makers own multiple houses, central government decision makers are own multiple homes and yeeha they're all "getting rich" why would you even want to lower the 10-20% annual property price growth inflation.

7744 posts

Uber Geek
+1 received by user: 2559

Subscriber

  Reply # 1218619 20-Jan-2015 21:31
One person supports this post
Send private message

was that really needed?

2718 posts

Uber Geek
+1 received by user: 358

Trusted
Lifetime subscriber

  Reply # 1218630 20-Jan-2015 21:49
2 people support this post
Send private message

Not really but it was damn good!

😃




My views (except when I am looking out their windows) are not those of my employer.

Mad Scientist
19012 posts

Uber Geek
+1 received by user: 2469

Trusted
Lifetime subscriber

  Reply # 1218637 20-Jan-2015 21:53
2 people support this post
Send private message

we are arguing about nothing here. we are all in the same boat. the sinking one.

the oxfam report that was released yesterday shows 1% of people owning 46% of the entire world's money. i gather all of you arguing are the 99%

4977 posts

Uber Geek
+1 received by user: 1323

Trusted
Microsoft

  Reply # 1218670 20-Jan-2015 22:23
Send private message

Jase2985: was that really needed?


me?  happy to be corrected.

331 posts

Ultimate Geek
+1 received by user: 61


  Reply # 1218677 20-Jan-2015 22:33
One person supports this post
Send private message

nathan:
Jase2985: was that really needed?


me?  happy to be corrected.


Do you own a home?

I own my home (and that's it - no rental properties - just my home). I don't like being called greedy just because I am a property owner. 


821 posts

Ultimate Geek
+1 received by user: 70

Trusted

  Reply # 1218698 20-Jan-2015 23:13
Send private message

nathan:
Jase2985: was that really needed?


me?  happy to be corrected.


I am sympathetic to the points that nathan makes albeit off topic tongue-out

I once told a residential property investor [who used all the before mentioned legal mechanisms to 'structure' his investments] that I as a tax payer was subsidizing his investments, it was obvious that he had not looked at it like that before...

21463 posts

Uber Geek
+1 received by user: 4362

Trusted
Subscriber

  Reply # 1218715 20-Jan-2015 23:31
Send private message

The constant objection for things that would make a city more livable from property owners based on their reasoning of "But my property value" is indication enough of how many greedy property owners there are.




Richard rich.ms

4977 posts

Uber Geek
+1 received by user: 1323

Trusted
Microsoft

  Reply # 1218727 20-Jan-2015 23:50
6 people support this post
Send private message

logo:
nathan:
Jase2985: was that really needed?


me?  happy to be corrected.


Do you own a home?

I own my home (and that's it - no rental properties - just my home). I don't like being called greedy just because I am a property owner. 



no I don't, I wish I did, I'm single and I can't afford to own a house in Auckland.

I totally agree with you, owning 1 home is not being greedy.  Everyone needs to live somewhere

No hassling to OP, he's looking after his retirement savings blah blah by owning a home to live in and renting out another.

I'm not hassling him.  I'm hassling the system, a system that has:

a tax regime that encourages investment in unproductive assets such as houses
inquiry after inquiry after inquiry and nothing happens to enable a generation of young people to live or own their own homes
unitary plans and proposed Auckland Unitary Plan
building products cost monopoly inquiries
NIMBYs who want the status quo because they're already in on the action and screw everyone else
outrageous council building inspection fees
stupid regulations that require 6 star homestar ratings
force developers to have new builds with universally accessible homes for disabled
A Government (both National & Labour) that needs to treat the volume of immigrants seriously
swathes of rich migrants who get land in perpetuity and residency visas
pathetic leadership from local and central government
Baby boomers owning the houses, tax free capital gains pushing the load of paying for their retirement onto Generation X and the generations following.
Politicians promising to resign instead of engage on debate about retirement

Can anyone say VESTED INTERESTS

This is all fine while the money-go-round continues, but I cannot see how this is going to end well.

331 posts

Ultimate Geek
+1 received by user: 61


  Reply # 1218763 21-Jan-2015 06:55
Send private message

nathan:
logo:
nathan:
Jase2985: was that really needed?


me?  happy to be corrected.


Do you own a home?

I own my home (and that's it - no rental properties - just my home). I don't like being called greedy just because I am a property owner. 



no I don't, I wish I did, I'm single and I can't afford to own a house in Auckland.

I totally agree with you, owning 1 home is not being greedy.  Everyone needs to live somewhere

No hassling to OP, he's looking after his retirement savings blah blah by owning a home to live in and renting out another.

I'm not hassling him.  I'm hassling the system, a system that has:

a tax regime that encourages investment in unproductive assets such as houses
inquiry after inquiry after inquiry and nothing happens to enable a generation of young people to live or own their own homes
unitary plans and proposed Auckland Unitary Plan
building products cost monopoly inquiries
NIMBYs who want the status quo because they're already in on the action and screw everyone else
outrageous council building inspection fees
stupid regulations that require 6 star homestar ratings
force developers to have new builds with universally accessible homes for disabled
A Government (both National & Labour) that needs to treat the volume of immigrants seriously
swathes of rich migrants who get land in perpetuity and residency visas
pathetic leadership from local and central government
Baby boomers owning the houses, tax free capital gains pushing the load of paying for their retirement onto Generation X and the generations following.
Politicians promising to resign instead of engage on debate about retirement

Can anyone say VESTED INTERESTS

This is all fine while the money-go-round continues, but I cannot see how this is going to end well.


I don't disagree that there are issues with property investment in NZ but do note that there have been a lot of changes in the past few years including:

- Removal of LAQC benefits
- Removal of the ability to claim depreciation
- Reserve Bank low equity restrictions (although debatable on whether this has hindered first home buyers and helped investors instead)
- Changes to the ability to claim expenses related to beach/holiday homes (now proportionate to the actual periods leased with a cavest to ring fence losses)
- Major political parties actively promoting a capital gains tax in the last election - previously thought of as political suicide




1849 posts

Uber Geek
+1 received by user: 675

Lifetime subscriber

  Reply # 1218767 21-Jan-2015 07:07
One person supports this post
Send private message

I'm always very cynical when I see politicians commenting on housing issues in Auckland.

There are more people with houses then are looking at buying houses.

This means the politicians won't introduce any policies to reduce house prices for fear of alienating those who already own property.

 " My house was worth X before you changed policy now it's worth Y. You stole Z dollars from me. "

A.




Mad Scientist
19012 posts

Uber Geek
+1 received by user: 2469

Trusted
Lifetime subscriber

  Reply # 1218777 21-Jan-2015 07:40
Send private message

i think politicians owning property is enough motivation not to slash their assets in half

 1 | 2 | 3 | 4 | 5 | 6 | 7
View this topic in a long page with up to 500 replies per page Create new topic

Twitter »

Follow us to receive Twitter updates when new discussions are posted in our forums:



Follow us to receive Twitter updates when news items and blogs are posted in our frontpage:



Follow us to receive Twitter updates when tech item prices are listed in our price comparison site:



Geekzone Live »

Try automatic live updates from Geekzone directly in your browser, without refreshing the page, with Geekzone Live now.



Are you subscribed to our RSS feed? You can download the latest headlines and summaries from our stories directly to your computer or smartphone by using a feed reader.

Alternatively, you can receive a daily email with Geekzone updates.