【Tax Exemption Tips】How to have tax saving when buying a property!
Buying a property involves significant expenses. Instead of hoping for interest rate cuts day and night, it is more practical to make good use of the “deduction for home loan interest”.
This measure allows homeowners to apply for tax deductions on the interest expenses incurred from buying a property. The annual deduction limit is HK$100,000, and a total of 20 taxable years can be applied for.
The homeowner can choose which year to apply for. Having a choice doesn’t mean everyone knows how to choose. The following key factors determine when it is worth deducting!
● Is it always advantageous to apply for deduction in high-interest years?
Most people choose to deduct taxes in years with higher interest rates but overlook their own financial situation.
Factors such as personal and spouse’s income and household expenses will affect whether they can fully enjoy tax benefits.
Suppose the spouse has a “gap period” without income due to job transition or if there are new family members, increasing the tax-free threshold, etc.
In such a year, the amount of tax payable may not be significant. Using up the limited deduction limit in a year with a low tax burden is, in essence, a waste.
Another common blind spot is that many people fail to distinguish the proportion of principal and interest in their property payments.
In general, the interest is higher at the beginning of buying a new property, or the interest payments in the initial period of the mortgage are higher compared to the later stages, where the interest is minimal when nearing completion.
Each homeowner faces a different situation, don’t just simply follow in someone’s footsteps. Ask advice from professional, and make your own plan.
● “Re-mortgage” affects tax deduction eligibility
For properties rented out in one’s name, the interest can also be deducted for tax purposes, and there is no limit on the number of years.
Many homeowners’ strategy is to first buy a property for self-use, then buy a new property and rent out the old one.
Note that when the rented property is under a “re-mortgage,” the interest on the property payment cannot be deducted for tax purposes.
Even if you sold out the old one and buy the new one with mortgage in order to have interest paid tax saving, it may not be an easy plan.
It is because in order to arrange a mortgage need to consider number of factors such as buyer’s income stability, age, and the location of the property are all considerations.
To simultaneously consider self-use and investment, and to minimize interest expenses while obtaining the highest returns, it is necessary to have a tailor-made package designed by professionals.
Every industry has its “exclusive” business techniques. Seek advice from an experienced accountant to avoid unnecessary detours.
With the right people and the right actions, everyone can become an expert.
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