Negative Gearing has always been a hot topic for investors, however, Labour’s recent proposal to restrict tax laws that allow it have seen Negative Gearing thrust into the spotlight.
What is it?
Negative Gearing benefits borrowers by taking advantage of tax laws that enable taxpayers to offset their losses.
The pluses to losing money…
Australia’s tax laws enable taxpayers to offset losses, incurred in one field of economic activity against future profits. Investors who own a rental property and receive less from the investment then the amount of costs resulting from owning it can offset these losses against other income/ profits within the year.
In most cases, annual rent earned from an investment property is less than the amount spent. Australia’s current tax laws allow you to offset this loss against other income.
How do I use negative gearing to make money…
Investors make money through negative gearing several small annual losses on their total rental income. The greatest return comes when you sell, the Capital Gains Tax discount you could receive means you are effectively taxed at half rates.
To make negative gearing effective…
• The current tax law must remain as it is.
• Requires market growth and rising house prices.
• Higher income tax rates see greater dividends. Highest earners pay largest tax brackets, negative gearing delivers the biggest tax breaks. As you go lower in tax brackets, the benefits are reduced.
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