What Is The Difference Between Positive and Negative Gearing?

What Is The Difference Between Positive and Negative Gearing?


Positive gearing occurs when your property is earning you an income from the rent you charge. Negative gearing occurs when the cost of owning a property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income including your wage or salary, to provide tax savings.

 

How Else Can My Property Investment Be Used to Lower My Income Tax?

Aside from negative gearing, there is another way to lower your income tax through property investment. It is done by using the depreciation of a property as an offset to your income tax.

As an example, if your rental income is $20,000 per annum, while your mortgage repayments are $19,000, you're making $1,000 profit. But by depreciating the value of that property by $10,000 per annum, you're actually making what's seen as a loss of $9,000. That loss you offset it against your income tax.

Most of that depreciation comes in the first five years or so, so typically this strategy is more successfully applied to a new property. However, depreciation is a tax deferral, not a rebate. This means when you sell the property, you've got to pay that money back to the ATO.

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