Negative gearing is when you borrow money to make an investment, and the income from the investment is less than the expenses. It is commonly used for property investments, where rental income may be less than other expenses.
It comes as a popular investment strategy in Australia. It is not for everyone, however. There are times when negative gearing can work as beneficial, and times when it won’t be. Before committing to anything, it is important to discuss this strategy with industry professionals to see if it would suit you.
Why should you consider negative gearing?
One of the main reasons why many Australians decide to go down this path is because of the return of investment in high growth areas. Australia is widely considered a massive ever-growing market, meaning that if you make an investment, there’s a high chance you’ll realise some capital growth that you’re wanting.
Negatively geared properties are scattered through Australia. Meaning you have free rein over almost anywhere in the country. But also you will have the ability to pick and choose top target areas that have steady growth potential.
Negative gearing can be a fantastic idea if you are wanting to save on tax. You should consider your account depreciation of assets. Through a negative gearing investment, you will be able to get big tax refunds that can transform a negatively geared property into a positively geared one. Of course, speak with your accountant about all this before reaching any decisions.
Negative gearing explained: deductions
Australia income tax law will allow you to claim a tax deduction to the extent that costs you will face are connected to your investment property. Moreover, non-cash expenses should be deducted.
Some of the more common tax deductions in regards to rental income are:
- Body Corporate Fees
- Borrowing Cost
- Council fees and water rates
- Property construction costs
- Insurance
- Property inspections of any kind
Bear in mind that things may change over time. Taxable income could eventually exceed tax deductions, meaning your property may stop being negatively geared.
If you’re sharing a property, or have jointly-held ownership (a couple, for instance) it would be beneficial if the higher income earner of the occupants has the greater ownership interest.
Turn To iBuyNew For Help
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