Negative gearing
Although experienced investors probably know all about negative gearing, there are many who still ask, what is negative gearing and how does it work?
When you buy an investment property and take all the income and offset all the expenses of owning that property into account, such as the cost of interest repayments on your mortgage, repairs and insurance, there are often times that property will not make money in the short term, it will actually lose money. The resulting loss from the property investment can then be offset against other personal income. This reduces your taxable income, which can in turn provide tax savings.
For example: if you owned a rental property that made $20,000 in rent each year, but the annual cost for you to hold onto the property came to $30,000, you’d have taxable loss of $10,000. You can use that loss to reduce the tax payable on your salary.
Negative gearing usually plays a role in property investment strategies, but as tax outcomes are not the sole driver of investment decisions, it’s important to consult with others and think about all the implications before taking a step forward.
If you’re preparing to buy your first investment property, please give us an obligation free call. Talking to financial professionals such as your accountant, a depreciation specialist and a mortgage broker are the first steps in setting up an investment purchase.