Negative Gearing Calculator
Are you negatively-geared or positively-geared?
Use our negative gearing calculator to work out the profit or loss from your investment property as well as your tax refund from negative gearing.
How does negative gearing work?
Investment properties have high once off and ongoing costs that usually higher than the actual rent income will cover.
- Your initial deposit
- Mortgage set-up fees including Lenders Mortgage Insurance (LMI) (if borrowing over 80% of the property value)
- Stamp duty
- Solicitors, conveyancing and other legal fees
- Connecting electricity, water and gas
- Monthly property management fees
- Repairs and maintenance costs that can vary but will invariably increase over time
- Monthly mortgage repayments plus annual interest payments
- Quarterly council and water rates
- Quarterly body corporate fees
- Annual land tax
- Annual mortgage account-keeping fees
- Annual building insurance
- Annual landlords insurance
In addition to this you may have such non-cash deductions as the depreciation of the building, an expense that is included in your tax return but is not actually a cost that you physically pay.
The ongoing cost of holding the investment property can be deducted from your taxable income.
Falling into a lower tax bracket is a great win but it’s important to be aware these wins won’t pay off until later down the track.
In the meantime, have a read of this guide about managing cash flow when negative gearing.
Why do people buy negatively-geared properties?
Many negatively-geared properties are in high demand areas that may potentially achieve higher rates of growth.
Property investors try to achieve more in growth than the cost to hold onto the property.
By amassing several properties like this they can do quite well in the long term.
In some cases, the rent income will increase over time and the property will become positively geared.
You’ll lose your tax benefits but you won’t have to pay anything to hold onto the property.
Check out this page about negative gearing versus positive gearing to get an idea of the benefits and drawbacks of each strategy.
Before making a decision, it’s best you seek independent advice from a qualified accountant so you fully understand your tax obligations.
How is negative gearing calculated?
We simply deduct the costs for the property or cash operating expenses, from the rental income you receive. This gives us your weekly cashflow.
For new properties we can also deduct depreciation.
We can then calculate the effect that this will have on your taxable income and the amount of tax you would get back, depending on your tax rate.