There are lots of terms and/or jargon when it comes to property investing and gearing is a very common one. Often you will hear people talking about negative gearing in relation to property investing. What are they talking about?
A property is negatively geared when the rent you receive is less than your loan repayments and outgoings, placing you in a position of losing income. This might sound like a bad position and for some investors it might be. It’s important to get the right advice on what type of gearing is right for your situation.
THE ADVANTAGES OF NEGATIVE GEARING
According to the ATO you may be able to claim on the expenses of your rental property. These expenses can sometimes include your interest repayments on your loan as well as other costs to maintain your property.
In the case of a property that is negatively geared, you will have to cover the shortfall of the costs to maintain your property from your income or savings. This can be offset by your taxable income reducing the tax you pay.
In some circumstances the savings you receive from the tax deductions can be greater than the costs of maintaining your rental property. But remember that every situation is different and that you should seek proper tax advice from your accountant before making any decisions.
THINGS TO BE AWARE OF
There are a lot of factors to consider when investing in property. Tax minimisation is one of them but in general is more advantageous to people how pay more tax. If you are in a lower income bracket or close to retirement this may not be the best strategy for you and either positive or neutral gearing might be better.
As there is always an ebb and flow in all investing it’s always best practise to pick a strategy that you feel comfortable with and that you can support in a “worst case” scenario. As you get more experienced your risk factor might change but always talk to you team of property specialist as well as other investors to get advice on what options there are.
If you want to learn more about what you can and can’t claim when investing in property visit the ATO website https://www.ato.gov.au/General/Property/
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