Tax Tips, Traps & Troubles - Turn rental loss into profit and save tax 20 Feb 2019

As you will probably know, 31 March 2019 (or equivalent balance date) is the last year you will be able to offset losses on rental properties against other income.

Could you rearrange your finances so your rental property no longer makes a loss and the interest on borrowed money is absorbed elsewhere?

If you have an ordinary company (not an LTC), you might be able to borrow money for your company and use it to reduce the debt on your rental property.

Some clients have built up a substantial credit in their company. This often arises because they have used some of their own money to get into business. It can also come about if salaries attributed to them are more than they are taking out as drawings.

The company balance sheet shows how much the company owes to the shareholders. You are entitled to refinance this amount by borrowing (from the bank for example) so the company can repay its debt to you. You can then use this money to reduce the debt on the rental property. Your company now pays more interest but your rental property pays less and you don’t finish up with an unusable loss.

Just in case there is a reason, in your case, why you should not do this, please check with us first.  You should also think about completing any needed repairs and maintenance before 31 March as opposed to afterwards.

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