Negative Gearing Property
When looking to purchase an investment property, many property investors like to utilise the benefits of negative gearing.
What is Negative Gearing?
Negative gearing is where the interest on the amount borrowed plus the costs of owning the investment exceed the income received from the investment (rent) resulting in a loss. This loss can then be used as a tax deduction to which can be claimed by the investor thus reducing their taxable income.
Negative gearing offers tax benefits which can be utilised immediately or at the end of the financial year when you submit your tax return.
Negative gearing also allows for the purchase of a bigger asset and coupled with the long term prospects of an increase in value, makes negative gearing a common choice for property investors as well as mid to high income earners.
There are many benefits to negative gearing but each individual’s circumstances are different and you as a property investor should decide whether negative gearing is right for you.
The benefits & risks of negative gearing
The benefits of negative gearing rely on the value of the investment increasing over time. This may be seen as a risk to some but if we look through history at the growth of property prices in Australia, we can see that property prices have grown on average over 8%pa. Investing in property, like all investments does have other risks associated with it such as borrowing money for an investment. The investor should consider the current financial position before they commit to any property investment. By knowing what they can and can’t afford will help make their investment in a new property much easier and stress free.
When your investment property is negatively geared, you may be entitled to deductions such as:
• The interest on the loan
• The costs of setting up the loan, including establishment fees
• Letting agent fees to manage the property
• The cost of advertising for tenants
• Council rates and land tax
• Owners’ Corporation levies
• Insurance premiums
• Depreciation of fixtures and fittings, including furniture
• Repairs and maintenance
The key benefit of
negative gearing is that it enables you to offset costs associated with your loan and renting the property against your tax bill at the highest rate of tax that you pay.
Making negative gearing work for you
To succeed in property investment through negative gearing, you need to have a clear understanding of everything involved. You need to be aware of all the deductions available to you and to remember the need to provide for capital gains when you sell. Your personal circumstances will determine how well negative gearing will work for you
To find out more about investing in property and the negative gearing benefits available to you, please feel free to give us a call on 1300 12 FIND or send us an email to
invest[at]Findip.com.au
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