What is Negative Gearing and How Does it Affect Your Investment Property?

When you decide to borrow money for an investment you are engaging in gearing. If your income from the investment is more than the expenses of the investment you are positively geared, likewise if your income is less than your expenses you are negatively geared. When applied to an investment property negative gearing is when your rental income is less than the amount you pay on interest and other property expenses.

While it may seem ideal to buy a positively geared property so it can generate regular income, there are several tax benefits you can take advantage of if you own a negatively geared investment property.

The losses you make as a result of negative gearing can be claimed as losses and offset against your total income earned, including your salary, which lowers your taxable income and effectively lowers the amount of tax you pay. This makes negatively geared properties favourable for people who have a high taxable income as they will be able to claim the losses of their investment property against their other forms of taxable income. Additionally, there is still potential for a significant capital gain when you sell the investment property which may cover all the expenses and result in a net capital gain.

As with any property, talking to a mortgage broker is going to set you on the right path for choosing the right investment property for you whether it involves negative gearing or not.

If you would like to learn more about negative gearing and investment properties, please get in touch with us today.