Can you use losses on rental properties to offset other income?

Mike has two investment properties and wants to know if losses on one house can offset the income from the other.

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Q. Mike
My wife and I have recently had our pension reduced and an overpayment registered. We have two rental units, one of which makes a profit and the other a loss of a similar amount. The Department of Veteran Affairs (DVA) told me that welfare legislation is different to taxation legislation as losses cannot be offset against profit.

Subsection 46C(4) of the Veterans’ Entitlements Act states: “If the amount of the allowable deductions relating to a property for a period under section 81 of the income Tax Assessment Act 1997 exceeds the amount of the rental, income from that property for that period is taken to be nil.”

This is understandable but the DVA then goes on to say that “this means that therefore losses from one property cannot offset profit from another”.

DVA and Centrelink both mention that this is the case but I am wondering if they are correct?

A. The information you have found is absolutely correct.

If you make a loss from an investment property, then that income will be treated as zero.

However, it is not possible to offset the loss from an investment property against the income from another property or against any other source of income.

You also can’t claim the same deductions for an investment property that you can claim in your tax return.

You can claim loan interest payments, rates and costs to maintain the property, but you will not be able to claim capital depreciation, costs to build or the cost of borrowing money, such as loan establishment fees.

If you have found that the changes to your pension as a result of this situation has changed your retirement outlook, you should consult with a financial adviser on the best way to proceed.

Do you have investment properties and receive the Age Pension? What advice do you have for Mike?

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Written by Ben

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