Owning a home can be beneficial for several reasons. First, it can provide stability and security, as you have a place to call your own and can make it your own. Owning a home can also be a good investment and give you a sense of community and pride of ownership that can be financially and emotionally rewarding.
Besides these, owning a home can offer tax benefits. If you’re interested in these benefits, continue reading to know what they are. However, before that, here’s a disclaimer: tax laws can be complex, so treat this article as a primer—not to mention that they can vary from state to state, country to country. Lastly, this article will focus on the tax benefits of home ownership in Australia.
In addition to the numerous tax benefits of owning a home, business owners should also be aware of the advantages of proper tax registration and compliance. Implementing effective GST registration solutions can help streamline financial processes, ensuring compliance and potential tax savings. This holistic approach to financial management can further enhance overall tax efficiency for both personal and business finances.
Depreciation Tax Deduction
One of the fears of owning a home is that it’s a form of investment that can depreciate. While you can enjoy a tax benefit—which the article will discuss in the next section—that may allow you to enjoy having more of the profit you’ll gain from selling your home, maintaining that property can cost money to ensure it’ll be in its best shape once you leave and sell it.
To help you out, you may claim a tax deduction for the depreciation of your property and its contents over time. Depreciation tax deduction for Australian homeowners mainly covers the value of the depreciation of the structure, equipment within it, and most removable items.
If you’re at a loss about this topic, you may want to look at some articles about it, like how SPBuy explains property depreciation.
Capital Gains Tax Exemption
If you want to move to a new home, you can benefit from a capital gains tax (CGT) exemption for your old house when you sell it in the market. To enjoy this benefit, you must live in your home as your main property for at least six months. Of course, this would apply to your new home once you sell it. Ensure you live on it for half a year and satisfy the other conditions.
CGT exemption for selling properties is also standard in other countries. For example, if you profit from the sale of your primary residence in the United States, you can have an exemption of up to $250,000 ($500,000 for those married and filing jointly) from that profit from your taxable income. To benefit from this exclusion, you must have lived in it as your primary property for at least two years.
Negative Gearing
Negative gearing is a term used in real estate investing. It’s a situation wherein the expenses associated with owning a rental property—such as mortgage interest payments, maintenance costs from things like fixing wind damage, and property taxes—exceed the rental income tenants pay.
In simple terms, negative gearing means that the property is making a loss for its owner. You can gain a safety net through a tax benefit when in this state. Suppose you have already determined the losses incurred by your rental property. You can now use it to claim a tax deduction to lower your tax bill.
Of course, this only applies if you plan to buy a home but want others to rent it first.
First Home Owner Grant
In some states and territories in Australia, you can enjoy being a first-time homeowner through a government initiative aptly named the First Home Owner Grant (FHOG). It’s given to eligible first-time home buyers and can provide financial assistance with purchasing a home. The grant amount varies depending on where the first-time homeowner lives and how much the house will cost.
Aside from being a future first-time homeowner, FHOG has other requirements as well for you to be eligible, and they are:
- The home buyer must be an Australian citizen.
- The home buyer must be 18 years old or older.
- The home buyer’s spouse or partner—if they have one—should be a first-time homeowner as well.
- The home buyer must live on the property for at least six months.
- The property must be new or heavily renovated if it’s an existing one.
- The property’s price must be in the state or territory’s FHOG price range.
While FHOG isn’t directly going to reduce your tax bill, it’s a form of income that isn’t taxable—it’s a government grant, after all. It effectively reduces the cost of all the potential tax implications you’ll deal with when buying a property for the first time.
Conclusion
These tax benefits make owning a home more affordable and provide some tax relief for homeowners. However, it’s important to remember that tax laws can be complex and subject to change, so don’t hesitate to consult a qualified tax professional for advice.
