April 16, 2018
You may have a few questions about negative gearing and what it actually is.
In the first instance, let’s take a quick look at what gearing – positively or negatively – actually means on an investment property.
Basically, when a property is positively geared the annual rental income received from the property is higher than the annual loan repayments and costs.
Negative gearing, on the other hand, occurs when you make a loss on the property. These losses can be claimed in your tax return, helping you to reduce your income and taking you to a lower tax bracket.
Say, for example, you have an investment property that collects $200 a week in rent, but your mortgage repayments are $300 a week, meaning you are making a loss of $100 a week or $5,200 a year. This negative cash flow will be taken into account when the government assesses your taxable income – so in this instance, an annual income of $90,000, will come down to $84,800.
Of course, the larger the investment portfolio (of negatively geared properties), the lower your taxable income could be.
When put like this, it is easy to see why negative gearing is so attractive to many investors.
One of the great benefits of negative gearing is that it makes property investment more attractive to a wider group of Australians. In a nutshell, negative gearing enables more Australians to purchase investment properties, which are then rented out.
To see if negative gearing is right for you, make an appointment with the team of home loan experts at Mortgage Choice in Joondalup. Give us a call on 9300 9322 or email email@example.com.