What is negative gearing?

Negative gearing means that the cost of owning an investment property outweighs the rental income it generates. Although you are making a loss, these losses are tax deductible and result in tax savings overall.

As an example, let's assume that your rental property earns $20,000 in one year and the expenses of owning the property (loan repayments, body corporate fees, maintenance, etc.) are $25,000. You will have a loss of $5,000 which you can claim as a tax deduction.

The biggest benefit of a negatively-geared property is the ability to claim tax deductions and reduce your taxable income.

Additionally, a negatively geared property investment may appreciate in value over time. This capital gain in the value of the home can offset your other losses.

There is also a risk involved with negative gearing because you are losing money. You will always need to budget for an ongoing shortfall and prepare for the losses.

The benefits of negative gearing are:

• You are able to claim losses on the asset such as borrowing costs, building depreciation, and property expenses on tax to reduce your taxable income overall
• Capital growth can outweigh losses