Negative Gearing

'Negative gearing' happens when the costs of owning a rental property exceed the rent returns you earn. When you take an investment loan, your property is 'geared'.

Investors negatively gear as they can generally claim a tax deduction for the investment loss. The aim is for the capital growth to offset the loss in earlier years. Negatively gearing investment properties normally plays an important part in investor strategies.

If you are making an investment loss, it is still costing you money. You will need to have cash from other sources, like your salary, to cover interest and expenses. Most investors use some gearing in the form of their mortgage, to fund their rental property.

How does negative gearing work?

When the cost of owning a rental property outweighs the income it generates each year it is a taxable loss which can normally be offset against other income including your wage or salary, to provide tax savings.

CASE STUDY

Let's take an example of a negatively geared property in Australia. Let's say that Bill owns a rental property generating $25,000 in rent each year. The costs of holding the property, including mortgage interest, come to $30,000. This gives Bill a taxable loss of $5,000, which he can use to reduce the tax payable on his salary. Important: This information is general in nature. Mortgage brokers and their licenses do not provide taxation advice. You should consider seeking independent taxation advice and how negative gearing relates to your individual circumstances.

Speak to your mortgage broker today about negative gearing. Kind Regards, The Newstead Group Team