Negative gearing with an investment property
Anyone looking into buying an investment property will likely come across the often befuddling term 'negative gearing'.
Essentially, negative gearing occurs when an investor borrows funds when buying a property, but the cost of owning that property outweighs the income it generates.
This can happen because the price of rent does not cover the interest on the loan, or the maintenance and regular costs involved in property management.
So why do some investors get into this situation?
According to the Australian Tax Office, a negatively geared property results in a net rental loss, which in turn can allow the investor to claim a deduction for the full amount of rental expenses against their other income sources such as salary, wages, business income or other rental revenues.
This would be completed when it comes time for tax returns.
As far as the effects on the property market go, negatively geared properties can be beneficial for the government and taxpayer.
Private developers can currently offer cheap alternatives to social housing because of negative gearing.
Benefits arise because it costs the taxpayer and government more to provide that social housing than it does to allow tax deductions for such property investors.