What is Negative Gearing

What is Negative Gearing? 

Hey there! At JKL Real Estate, we know that understanding the ins and outs of negative gearing can be a game-changer for property investors. Let’s break it down so you can see if this strategy works for you.

What is Negative Gearing?

Gearing is when you borrow money to invest in a property. Your property is negatively geared when your rental return is less than your outgoings and interest. If this is the case, you might be eligible for a tax concession.

Why Use Negative Gearing?

The key benefit of negative gearing is that you can deduct the net loss on a rental property from your taxable income. This helps to minimize losses while you wait for long-term capital gains.

Is Negative Gearing an Effective Tax Strategy?

To determine if negative gearing is right for you, carefully assess your:

• Rental Income
• Property-Related Expenses
• Taxable Income
• Capital Growth Prospects

We recommend speaking with a trusted financial advisor before deciding on your investment strategy.

The Basics

1. Purchase Price

   • Start with a good purchase price. Avoid overpaying, as this directly impacts your capital and interest payments.

2. Rental Income

   • Your rental income is crucial for calculating negative gearing deductions. You need to balance being competitive with covering your costs. Remember, home loan repayments aren’t the only costs involved.

3. Expenses to Consider

   • Negative gearing allows you to deduct various expenses related to maintaining and renting out your property, such as:
     • Repairs and maintenance
     • Renovation costs
     • Pest control
     • Connecting utilities and services
     • Advertising for new tenants
     • Land tax and council rates
     • Accountant’s fees
     • Legal fees and insurance
     • Strata and body corporate fees
     • Damages from problem tenants

4. Depreciation

   • Not all costs can be deducted immediately. Some items, like those purchased specifically for your rental property, are depreciated over several years. This is where a good accountant or financial advisor comes in handy. You can also claim deductions for improvements, including capital works (construction costs).

Making Money with Negative Gearing

You can only profit from negative gearing if your long-term capital growth exceeds the losses you incur from rental. It’s a balancing act that requires careful planning and professional advice.

Get Professional Advice

It’s important to seek guidance from a professional financial adviser, tax agent, or accountant to ensure you’re making the most of your investment.\

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