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Negative gearing made easy

There’s always a lot of talk about negative gearing. Most of it makes the whole thing sound extremely complicated. But really, it’s quite simple.

By Glenn Murray | Advertising Copywriter, Website Copywriter, Article PR Specialist *

The government knows property investment is good for the economy. They also know it can be hard on your cash flow. In order to encourage investment, they provide tax breaks for investors.

Negative gearing simply means using those tax breaks to help you pay off your investment.

So how does it work?

If you spend more maintaining your property than you get back in rent, you’re officially making a loss.

To help you cover the loss, the government lets you claim it as a tax deduction.

For example, Mary earns $60,000 a year. She has an investment property with yearly rental expenses and income as follows:

Income
Rent ($250/wk) = $13,000
TOTAL = $13,000

Expenses
Interest on mortgage repayment ($1400 / mnth) = $16,800
bank fees = $100
accountants and solicitors fees = $500
repairs and maintenance = $2,000
insurance = $200
property management fees = $1,000
purchases of property related magazines and journals = $120
cleaning and gardening costs = $1,000
rates = $1,400
TOTAL = $23,120

TOTAL LOSS = $23,120 - $13,000 = $10,120

Mary’s loss is $10,120. When she does her tax return, she claims this loss as a tax deduction. This reduces her taxable income from $60,000 to $49880. Instead of being taxed about $16480, she will now be taxed about $12092. She has made a tax saving of $4748.

Mary can choose to have this money refunded in a lump sum, or she can have it refunded in weekly instalments.

Either way, she can use it to pay off her loan. Instead of having to cover $10,120 out of her own pocket each year, she only has to cover $5372 ($10,120 - $4748). That means she’s only paying about 23% of the cost of her investment property. Her tenants and the taxman are paying the rest.

Using Negative Gearing, your tenants and the taxman are paying the lion’s share of your mortgage for you. And if you’ve invested wisely, your property should be increasing in value the whole time.

Disclaimer

This information is not financial advice. It is provided only for the purposes of illustrating the concept of negative gearing. The calculations used are estimates only. Please consult a financial advisor before investing.

* Glenn Murray is an advertising copywriter, website copywriter, SEO copywriter, and article submission and article PR specialist. He heads copywriting studio, Divine Write, and is a director of article PR company, Article PR. He can be contacted on Sydney +612 4334 6222 or at glenn@divinewrite.com. Visit http://www.DivineWrite.com or http://www.ArticlePR.com for further details, a FREE SEO eBook, or more FREE reprint articles.

Need a newsletter article or press release written professionally? Call Glenn in Sydney Australia on +612 4334 6222 or email glenn@divinewrite.com for a creative advertising copywriter, website copywriter, or SEO copywriter.