| What is Negative Gearing?
Gearing refers to borrowing money to invest in a property. When your rental return is less than your outgoings and interest, your property is negatively geared, which can make you eligible for a tax concession.
One of the main advantages of negative gearing is that you can deduct the net loss on a rental property from your taxable income, which helps minimise any losses while waiting for long-term capital gain. However, before considering negative gearing as a tax strategy, it’s essential to assess rental income, property-related expenses, taxable income, and capital growth prospects.
It’s advisable to speak with a trusted financial advisor before deciding on your investment strategy. The purchase price is critical because it governs your capital and interest payments. It’s important not to overpay and to buy well.
Rental income is another critical factor in calculating your negative gearing deductions. It’s necessary to be competitive with rent prices while covering your costs. Remember that there are several costs associated with owning a rental property beyond home loan repayments.
Negative gearing allows you to deduct expenses related to maintaining and renting out your property, such as repairs, maintenance, renovation costs, pest control, connecting utilities and services, advertising for new tenants, land tax, council rates, accountant’s fees, legal fees and insurance, strata and body corporate fees, and damages caused by problem tenants.
Certain expenses associated with the upkeep of your rental property cannot be deducted all at once and must be depreciated over time. This is where a good accountant or financial advisor comes in handy. Generally speaking, items covered by depreciation are those purchased specifically for the rental property that decrease in value over time.
You can also claim deductions for improvements made to the property, including capital works such as construction costs. It’s crucial to get professional advice when dealing with these issues.
In summary, negative gearing provides an opportunity to make money if your long-term capital growth surpasses the loss you incur from rental. It’s important to seek the advice of a professional financial adviser, tax agent, or accountant when considering negative gearing as a tax strategy.
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