If you’re a property investor or looking to become one, it’s important to understand what negative gearing is, as well as the possible benefits, risks and tax considerations that come with it.
To firstly define, gearing is when you borrow money to invest, wherein the income earned from your investment property can be either positively or negatively geared.
Negative gearing or a negatively geared property happens when your rental income is less than your interest repayments and other property-related expenses, giving you a tax loss that may offset your current income. Although the negative return (or loss) may sound literally ‘negative’, any net rental loss you incur during the financial year may be offset against other income you earn, such as your salary. This in turn reduces your overall tax rate and the amount of tax you pay.
Nonetheless, positive and negative gearing strategies both have benefits and drawbacks, depending on your personal circumstances, current income and debts, and risk preferences.
If you’re unsure, consider talking to our property investing specialist for personalized advice.
