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Property and tax thoughts - a #THREAD. I don't claim that I am the expert in this, but I have some thoughts on this.
Here goes....
Here goes....
Note that there is a fine balance between paying less tax, having less liability and profitability. Hence I will touch on companies and personal tax.
If buying a rental property cash, all income will be fully taxable at your normal tax rate. This means, if you are in the 45% tax bracket, then you will pay that in taxes on all profit made.
If you buy a rental property with a home loan, you can deduct the interest (and bank fees!) from tax. It's vital that you declare ALL income and expenses - including rental, rates/taxes, levies, petrol for inspections, agent fees, etc etc etc.
When a rental prop has a home loan, this extra expense will lower your tax footprint. This is what people call leverage. You leverage debt - you use other people's money to buy your property. Details here: https://frugallocal.co.za/2020/09/14/buy-property-by-using-other-peoples-money-opm/
If you buy it in a company (that you or a group of people owns), you will be taxed company tax - 28%. That is, IF you don't cash the money out into your bank account, but grow your portfolio in the company. Details here: https://frugallocal.co.za/2020/08/03/should-i-buy-my-property-in-a-trust-company-or-on-my-own-name/
There are special tax breaks that you can get. This includes Section 13 SEX, QUIN QUAT etc etc etc. where you can pay less tax. https://frugallocal.co.za/2020/02/24/property-and-tax-incentives-within-south-africa/
A breakdown of Section 13 SEX can be found here: https://frugallocal.co.za/2019/09/30/property-tax-strategy-section-13-s-e-x/
Consider what you want to do with your property:
Fix and flip will incur the wrath of the taxman: profits are fully taxable at your normal tax rate.
Investing in property will be liable to capital gains tax - CGT. For details, see here: https://www.privateproperty.co.za/advice/property/articles/capital-gains-tax-explained/7258
Fix and flip will incur the wrath of the taxman: profits are fully taxable at your normal tax rate.
Investing in property will be liable to capital gains tax - CGT. For details, see here: https://www.privateproperty.co.za/advice/property/articles/capital-gains-tax-explained/7258
I love cash flow. If you're like me, you might want to put a deposit down on a property to lower your monthly shortfall. I don't want to have a huge burden on my cash flow (I think of it as cholesterol) - explained here: https://frugallocal.co.za/2019/02/20/other-income-sources-except-your-fulltime-job/
One of the great sins is pumping all your money into your primary residence's flexi bond, and then buying an investment property cash.
Make very sure that the tax will be beneficial, as you will pay your nominal tax rate, and get no tax break on your homeloan that you have to pay
Make very sure that the tax will be beneficial, as you will pay your nominal tax rate, and get no tax break on your homeloan that you have to pay
Remember: don't buy property because it's cool.
Do your own meth.
Check what the tax man will take, how much you can SAFELY leverage (DONT DO THIS UNLESS YOU KNOW WHAT YOURE DOING) and what the projections will be with or without a deposit.
Do your own meth.
Check what the tax man will take, how much you can SAFELY leverage (DONT DO THIS UNLESS YOU KNOW WHAT YOURE DOING) and what the projections will be with or without a deposit.
