Thursday December 17 2020

What does negative gearing mean?

Negative gearing is where your investment property costs are higher than the rental income you receive at the property. Clear as mud? In simpler terms, it's where the costs of owning the investment property i.e., the home loan repayment, strata fees or land tax, property management fees, insurances and any other ongoing associated expenses are higher than the rental income you are getting.

For example: if you have $30,000 rental income a year coming in, and $40,000 expenses going out, you are -$10,000 or negatively geared. Of course, we are not tax advisers (disclaimer!) so we recommend that you get advice from your Accountant or Financial Adviser before claiming this 'loss' against your taxable income.

A common misconception is that negative gearing allows you to claim 100% of the 'loss', but this is not the case. Ultimately, you're still losing money, but, you could get some of it back at tax time (every little bit helps!). In future, as your rental income (hopefully) increases, and your costs (hopefully) reduce, your property would become positively geared, which is the opposite to negatively geared.

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