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, 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 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.
Note: The ongoing cost of holding the investment property can be deducted from your taxable income.
In addition to the deductions mentioned above, you may have such non-cash deductions as the depreciation of the building—an expense that’s included in your tax return but isn’t actually a cost that you physically pay.
Remember, falling into a lower tax bracket is a great win but it’s important to be aware of the fact that these wins won’t pay off until later down the track.
To educate yourself more on the topic, go through this guide about managing cash flow when negative gearing.
Is negative gearing worthwhile?
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 rental 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 do you calculate negative gearing?
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.
Can you buy an investment property?
Our mortgage brokers are investment loan specialists.
We know which banks can help and who offers competitive discounts for high net worth investors.
Speak to our mortgage brokers by calling 1300 889 743 or fill in our free assessment form to find out if you can qualify for a professional discount.