wazua Tue, Dec 24, 2024
Welcome Guest Search | Active Topics | Log In | Register

Return on rental property after tax
Options
Previous Topic · Next Topic
heri
#1 Posted : Wednesday, May 04, 2016 8:50:02 PM
Rank: Member


Joined: 9/14/2011
Posts: 834
Location: nairobi
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?
Back to top
WWW
 Report Abusive | Report SPAM
enyands
#2 Posted : Wednesday, May 04, 2016 11:27:53 PM
Rank: Elder


Joined: 12/25/2014
Posts: 2,300
Location: kenya
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?



Why expose yourself Laughing out loudly let someone inbox you. You know we have kra guys here Laughing out loudly
Back to top
 Report Abusive | Report SPAM
heri
#3 Posted : Thursday, May 05, 2016 8:29:34 AM
Rank: Member


Joined: 9/14/2011
Posts: 834
Location: nairobi
enyands wrote:
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?



Why expose yourself Laughing out loudly let someone inbox you. You know we have kra guys here Laughing out loudly


@enyands, i know there was a proposal in the finance bill to criminalize tax avoidance but as far as i know only tax evasion is a crime but not tax avoidance

But anyway my question is really can any rental property be a good investment when you factor in the tax?
Back to top
WWW
 Report Abusive | Report SPAM
Swenani
#4 Posted : Thursday, May 05, 2016 9:17:30 AM
Rank: User


Joined: 8/15/2013
Posts: 13,237
Location: Vacuum
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?


If your annual rental income is less than 10M, there is no way you can avoid residential rental income tax,The rate is fixed at 10% of gross rent with no allowable expense deduction.
If Obiero did it, Who Am I?
Back to top
WWW
 Report Abusive | Report SPAM | Edit by user: Thursday, May 05, 2016 9:23 AM | Reason: Not specified
hardwood
#5 Posted : Thursday, May 05, 2016 9:53:57 AM
Rank: Elder


Joined: 7/28/2015
Posts: 9,562
Location: Rodi Kopany, Homa Bay
Swenani wrote:
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?


If your annual rental income is less than 10M, there is no way you can avoid residential rental income tax,The rate is fixed at 10% of gross rent with no allowable expense deduction.


Then you increase your rent by 10% e.g. from 20k to 22k per unit.
Back to top
 Report Abusive | Report SPAM
washiku
#6 Posted : Thursday, May 05, 2016 10:08:54 AM
Rank: Chief


Joined: 5/9/2007
Posts: 13,095
hardwood wrote:
Swenani wrote:
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?


If your annual rental income is less than 10M, there is no way you can avoid residential rental income tax,The rate is fixed at 10% of gross rent with no allowable expense deduction.


Then you increase your rent by 10% e.g. from 20k to 22k per unit.


Then you tax increases by same margin, No?
Back to top
 Report Abusive | Report SPAM
Swenani
#7 Posted : Thursday, May 05, 2016 10:21:49 AM
Rank: User


Joined: 8/15/2013
Posts: 13,237
Location: Vacuum
hardwood wrote:
Swenani wrote:
heri wrote:
I have been wondering if rental properties can ever give a good return when one is paying the taxes due

I see most rental properties give a return of 8% to 10%. But if you factor in the tax, then returns will go to a low of less than 7% on the higher side

Can someone help me understand how these investments can ever make sense?

Any tax experts on how to legally avoid taxes?


If your annual rental income is less than 10M, there is no way you can avoid residential rental income tax,The rate is fixed at 10% of gross rent with no allowable expense deduction.


Then you increase your rent by 10% e.g. from 20k to 22k per unit.


Yeah, Shifting tax incidence is one way of legally avoiding tax but will the tenants stay with you after the rental increase?

One can alternatively write to KRA to remain with the old regime of incremental taxes where you can deduct expenses from gross rental income before subjecting the net income to tax
If Obiero did it, Who Am I?
Back to top
WWW
 Report Abusive | Report SPAM | Edit by user: Thursday, May 05, 2016 10:33 AM | Reason: Not specified
heri
#8 Posted : Thursday, May 05, 2016 11:13:59 AM
Rank: Member


Joined: 9/14/2011
Posts: 834
Location: nairobi
what about commercial property like an office? The only deductions i can think of would be loan interest but if one is buying on cash basis ( loan interest rates are crazy ) then it means the tax burden will be too high making the returns very bad

is there space really for an employed person to use his savings after paying PAYE to invest in such properties? it feels like such properties can only make sense to those who want to clean ill gotten cash
Back to top
WWW
 Report Abusive | Report SPAM
Swenani
#9 Posted : Thursday, May 05, 2016 11:53:09 AM
Rank: User


Joined: 8/15/2013
Posts: 13,237
Location: Vacuum
heri wrote:
what about commercial property like an office? The only deductions i can think of would be loan interest but if one is buying on cash basis ( loan interest rates are crazy ) then it means the tax burden will be too high making the returns very bad

is there space really for an employed person to use his savings after paying PAYE to invest in such properties? it feels like such properties can only make sense to those who want to clean ill gotten cash

For commercial property, you will use the incremental income tax rates i.e PAYE(for individuals) or corporate tax rates for firms.

For a commercial property, you can deduct the following
1. water and electricty bills(assuming it's not paid by tenants
2.Caretaker wages and/or management fees
3.maintenance charges and capital works
4. Land rates
5.Insurance premiums
6.Advertising for tenants
7. Bank charges
8. Cleaning.
9.WTA

You can even include your fuel costs to inspect the buildings etc
If Obiero did it, Who Am I?
Back to top
WWW
 Report Abusive | Report SPAM
heri
#10 Posted : Thursday, May 05, 2016 12:03:50 PM
Rank: Member


Joined: 9/14/2011
Posts: 834
Location: nairobi
Swenani wrote:
heri wrote:
what about commercial property like an office? The only deductions i can think of would be loan interest but if one is buying on cash basis ( loan interest rates are crazy ) then it means the tax burden will be too high making the returns very bad

is there space really for an employed person to use his savings after paying PAYE to invest in such properties? it feels like such properties can only make sense to those who want to clean ill gotten cash

For commercial property, you will use the incremental income tax rates i.e PAYE(for individuals) or corporate tax rates for firms.

For a commercial property, you can deduct the following
1. water and electricty bills(assuming it's not paid by tenants
2.Caretaker wages and/or management fees
3.maintenance charges and capital works
4. Land rates
5.Insurance premiums
6.Advertising for tenants
7. Bank charges
8. Cleaning.
9.WTA

You can even include your fuel costs to inspect the buildings etc


@Swenani thanks

Good pointers. But for a small office which am considering buying in westlands . Rent would like like 50K pm and i do not foreseen any of the above expenses. Maybe just land rates?

Does WTA apply? and do you know at what rate it would be

assuming i buy the office at about 6.5M what will be the WTA if any?
Back to top
WWW
 Report Abusive | Report SPAM
Swenani
#11 Posted : Thursday, May 05, 2016 12:44:26 PM
Rank: User


Joined: 8/15/2013
Posts: 13,237
Location: Vacuum
heri wrote:
Swenani wrote:
heri wrote:
what about commercial property like an office? The only deductions i can think of would be loan interest but if one is buying on cash basis ( loan interest rates are crazy ) then it means the tax burden will be too high making the returns very bad

is there space really for an employed person to use his savings after paying PAYE to invest in such properties? it feels like such properties can only make sense to those who want to clean ill gotten cash

For commercial property, you will use the incremental income tax rates i.e PAYE(for individuals) or corporate tax rates for firms.

For a commercial property, you can deduct the following
1. water and electricty bills(assuming it's not paid by tenants
2.Caretaker wages and/or management fees
3.maintenance charges and capital works
4. Land rates
5.Insurance premiums
6.Advertising for tenants
7. Bank charges
8. Cleaning.
9.WTA

You can even include your fuel costs to inspect the buildings etc


@Swenani thanks

Good pointers. But for a small office which am considering buying in westlands . Rent would like like 50K pm and i do not foreseen any of the above expenses. Maybe just land rates?

Does WTA apply? and do you know at what rate it would be

assuming i buy the office at about 6.5M what will be the WTA if any?

An office doesn't qualify for WTA or IBA
If Obiero did it, Who Am I?
Back to top
WWW
 Report Abusive | Report SPAM
Users browsing this topic
Guest
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.

Wazua Investor Theme
Powered by YAF | YAF © 2003-2009, Yet Another Forum.NET
Copyright © 2024 Wazua.co.ke. All Rights Reserved.