What’s negative geared or negative gearing mean? Negative Gearing means that expenses which the ATO allow as tax deductible in your personal tax return outweighs your income from Rent.
So the rent is less than these tax deductions. These tax deductions, on your personal return are claimed in a different section and can include but not exhaustive list: Interest, borrowing expenses charged by the bank, including mortgage insurance, (these are all tax deductible over 5 calendar years, usually 6 tax year) council or shire rates, water rates or excess water, landlords or building insurance, repairs to property or chattels, (a chattel is a high use item like HWS, air conditioner, carpet or stove etc) depreciation on these chattels, (depreciation is the write off of these items over there expected life). The largest deduction besides interest is the possible deduction for the building write off, usually over 40 years or 2.5 %, advertising, rental property inspections and management fees, travel to inspect or to do maintenance by yourself, bank fees, postage, internet, etc….are all tax deductible for property investing taxpayers in their personal tax returns.
Although the tax deductions of negative gearing and large refunds on lodging your personal tax return are exciting, you need to make sure you have the ability to make tax free capital gains.
Tax-free capital gains? Yes, invest in a property, hold it for more than a year and 50% will be tax-free when you lodge your personal tax return. So when investing, usually the land is the reason you make a capital gain and your choice of suburb determines how much the land will go up in value.