What is Negative Gearing?
Negative Gearing is an investment strategy which involves purchasing a property that has holding costs, usually interest and depreciation greater than the rental income it generates. This means you are making a loss, but with negative gearing, the loss in income can be claimed as a tax deduction.
The entire strategy relies on using leverage and increasing property asset values, to offset losses made from holding the property while negatively geared.
The benefits of negative gearing are:
✅ A large majority of properties in the Australian economy are negatively geared, they can help keep rent lower and reduce public housing requirements.
✅ Beneficial tax arrangements for investors, and can help grow the wealth of every day Australians.
The main advantage of negative gearing is that you can offset the loss from owning a property with the income you earn from it. This will eventually decrease the taxable income and your tax liability will decrease. Those who pay high tax may prefer negative gearing when it comes to investing in real estate, as it will increase their tax return and also allow long term capital growth.
The downside of negative gearing is:
Tax benefits largely help higher income earners, if you aren’t paying any tax then there is no point in getting a discount on it!
It can inflate property values making it harder to get into the market if you are a first home owner.
Depending on how negatively geared you are, you could be entirely reliant on capital gains and get into issues if expenses significantly increased.
To find our more on this subject, contact one of our agents today and they will shed more light on the impacts the impending election may have on many Australians.
Thanks for reading.