Negative gearing is term that is thrown around a lot but very few people actually know how it works with property investment. Unfortunately, they don’t teach this stuff in schools so unless you have spoken to an experienced property investment advisor how would you ever know?
Let me explain.
Negative gearing through property investment is quite simply when the “running costs” of the property (interest, property management, insurance etc) are higher than the income (rent) so the investment property makes a loss. This loss can then be applied against your personal income to reduce the amount of income tax you pay personally.
Where it become very lucrative is when we can use depreciation on the investment property, to boost that loss. The key is that depreciation is a “non cash” deduction, meaning that is not actually money coming out of our pockets, it is just a book entry. Yet we are still able to use this against our own personal income. That is why it is so important when you are learning how to get started in property investment that you quickly realise that new investment property is better than old investment property as it can turbo charge our negative gearing and thus help our cash flow.
Using the power of depreciation and negative gearing, it is very easy to get the cost of an investment property to under $100 per week.
While negative gearing is great, never buy an investment property just to reduce tax. This is wrong. First and foremost the investment property should have a focus on increasing in value (capital growth). Too many people have been caught up in dodgy tax schemes just because they thought they needed at tax deduction. It is important to sit down with an experienced investment property advisor and set up a strategy that suit you. Learn how to get started in property investment right the first time and it will save you thousands in costly mistakes later.
If you would like to know more about negative gearing/tax deductions and getting the right Australian property investment advice, then please complete the form below and one of our experienced property investment advisors will call you with the answers.