Land Tax 101
As a property investor, it's crucial to account for land tax as an annual expense. This tax is calculated based on the value of your land holdings above a specific threshold, which varies by state. Keeping up-to-date with these thresholds and calculations in your state is essential. Here's a comprehensive guide to understanding land tax.
How is Land Tax Calculated?
Land tax is assessed at the end of each financial or calendar year, depending on your property's location. The tax amount is based on your property's 'unimproved value', which is its market value under normal sales conditions.
The tax is applied on a sliding scale. Once your land's value surpasses the exemption threshold, you are charged a lump sum plus a percentage of the value above that threshold. Typically, your land will be valued by your State Government or local council.
Is Land Tax a Tax Deduction?
Land tax does not apply to your principal residence but does apply to any investment properties. The land tax paid on investment properties is tax-deductible. To claim this deduction, use the assessment notice from your jurisdiction's revenue office at tax time.
Budgeting for Land Tax
Given that land tax is an ongoing annual expense for investment properties, it's wise to set aside funds throughout the year to cover it. If you're uncertain how much to save, review the previous year's land tax assessments or consult with your accountant for an estimate.
Regardless of the type of investment property you own, you must pay land tax each year. Accurately estimating your land tax assessment and setting aside funds is critical to managing the outgoings associated with your investment properties. Consult with your accountant for advice on budgeting for land tax and incorporate this cost into your plans for portfolio growth.
Note: This article provides general information and is not intended as financial or legal advice. Always consult your professional financial and legal advisors before making any decisions.