Positive Gearing Vs Negative Gearing

Have you recently been looking into the best home loans or commercial property loans for a possible investment property? Are you wanting to learn more about positive gearing and negative gearing and the effect this can have on your finances and properties? The team at Greenline Home Loans can help!

This article will help you understand what gearing is, the features of positive gearing and negative gearing, the benefits of both and tips to keep in mind to get the most out of your investment property.

What Is Gearing?

Gearing refers to when you borrow money to invest and is most commonly referred to when speaking about investment properties. Positive and negative gearing refers to when somebody buys a property, often an investment property, which is then rented out or brings in a form of income. Both positive and negative gearing strategies can have benefits and drawbacks, making it important to consider which best suits you, your personal circumstance including your income, debts, and financial position as well as your risk preferences. 

What is Depreciation? 

The depreciation of a property refers to natural wear and tear over time of a building’s structure and assets, which property investors can claim as tax deductions in each financial year. Depreciation is often linked to both positive and negative gearing as both depreciation and capital allowances are legitimate tax deductions which can be claimed. 

The main benefit of depreciation for a property which is positively geared is the reduction in the amount of tax payable. When you claim for depreciation on a property, the profit you make on the property will be lower meaning less tax will be payable. 

The main benefit of deprecation for a property that is negatively geared is an improved tax position. For a property which is negatively geared, when you claim for depreciation this can increase the overall loss of the investment property which can then be claimed as a tax deduction against personal income. As a result of this process, there will be a decrease in the investors tax liability which leads to a higher tax refund. 

Whether your property is positively or negatively geared, there are several benefits of utilising a depreciation schedule. Reach out to the friendly team at Greenline Home Loans today to find out more!

Understanding Negative Gearing And Its Benefits 

When the income from the property is less than the rental return, interest, or other related property costs, this is referred to as negative gearing. 

The main benefit of negative gearing is that any net rental income you may lose throughout the year may be offset against your salary or other income you may earn over the financial year. When this happens, it reduces your taxable income and how much tax you will need to pay. Overall, if you have a reduced taxable income, this could save you money in the long run. 

There are several other benefits of negative gearing which may include:

  • Capital growth over time generally means the investment property should increase in market value 
  • An overall reduction in tax liability 
  • Having a regular income through the tenants 

It is important to keep risks in mind when considering negative gearing such as ongoing ownership costs, initial purchase costs and the responsibilities tied with becoming a landlord. Reach out to the team at Greenline Home Loans who can assist you with covering which risks you are willing to take, the best strategy and how your personal circumstances and financial situation relate to applying for commercial property loans or a home loan. 

Understanding Positive Gearing And Its Benefits

When the income from the property is more than the rental return, interest, or other related property costs, this is referred to as positive gearing. 

If you are making more money in comparison to your net rental income and other property related expenses, this can leave you with more money in your pocket which is often used to ensure that loan repayments are met, although it can be saved to assist with paying for external things. 

One thing to keep in mind regarding positive gearing is that your net rental income can be subjected to tax, which may impact the overall increase over time. It is important to consider your strategy and long-term goals when deciding on an investment property, which is why the team at Greenline Home Loans are here to help!

Consider Your Risks With Positive And Negative Gearing

It is important to consider your risks with positive and negative gearing strategies. In relation to negative gearing, it is recommended to choose your investment property carefully, you have a suitable income for the repayments you are required to make and for any property-related expenses and to consider any insurance you may require. 

Reach out to the friendly team at Greenline Home Loans who will be able to assist with the best home loans and commercial property loans for an investment property. The team will be able answer any questions you may have about positive and negative gearing strategies and which route is the best to take for your needs, personal circumstances, financial situation, and preferences!

Reach out to Greenline Home Loans today!

If you have been considering buying your first home and are looking for the best home loans, buying a residential property, wanting an interest-only residential home loan or are investigating commercial property loans, get in touch with our team of experienced brokers at Greenline Home Loans. We have access to 50 lenders and a strong relationship with several major banks to assist you and offer a solution to suit your needs.

At Greenline Home Loans, we will tailor the best solution for your needs and walk with you hand in hand from the first day you consider a construction loan or small business loan. Contact our friendly team of brokers to speak about low-rate home loans on 1800 705 505 to get started today!

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