When you invest in properties, you should understand the best strategies for your financial goals, research the market and find the right properties that can implement these strategies. Be careful not to ignore your budget or go against your own due diligence. You should also avoid thinking that negative gearing is a strategy in itself.
Negative gearing is when the costs of your property is more than the income you earn from it, translating to a loss. Any net loss from investment properties may be included in your assessable income so your taxable income bracket and the tax you have to pay may be reduced. If the property price goes up and you do not sell, no capital gains tax will be payable. However, when you sell you the asset, you would have to pay capital gains tax. Note that negative gearing is also available for businesses and shares.
Negative gearing is simply a funding model. Investors often hope that their capital gains will be more than their income losses. They hope they can access these gains when they sell or refinance their property.
Indeed, negative gearing is more favourable for high income taxpayers. However, before you think that investing in a property will reduce your tax through negative gearing deductions, consider that the investment property will soon be neutrally or positively geared because of rising rents and fixed mortgages. Reducing your tax through negative gearing may only be effective during the first few years of ownership.
Negative gearing should be viewed as a legitimate taxation deduction, just like claiming for work-related home office and car expenses or initial losses after setting up a new business. Talk to an expert or accountant to know the other financial strategies available for you.
If you would like to know more about investment strategies and negative gearing, you can click here to know more about Chan & Naylor services. You can leave your details here and we can schedule you for a free consultation. We’ll contact you to explain more.
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