Key Points of Negative Gearing for Real Estate

Negative gearing is a tax term that is used most commonly during your quarterly or yearly income tax reviews. The concept is to offset the loss of an item against other income. You may have been told, at some point, that this method would work well for recent real estate acquisitions you have made. Before you go forward with any negative gearing options or processes, consider the following key points.

Reducing Your Tax Bill

They key point, and most important aspect, of using negative gearing on recent real estate acquisitions is the ability to reduce your tax bill. Your tax bill will be reduced by the amount of tax loss that you will have on the property. This can be a significant amount, especially if the transaction was completed before ttax season. This savings can help with your investment expenses without going over those expenses.

Claimable Items with Negative Gearing

Understanding what negative gearing does is one thing, but understanding what can be claimed under negative gearing is something else. With this process you can claim corporate fees, interest that is paid on the insurance for the real estate, repairs that must be made, and inspections. These items can be costly, depending on the property location and age. Other claimable items may be available depending on the type of real estate property and location.

Higher Income Ownership

You should consider who owns the property before you begin the negative gearing process. In cases where there are two owners, it may be more beneficial to have the owner with the higher income and less financial risk takeover the ownership. This can lead to the negative loss turning into a positive gain that can allow you to either even out on your budget or can lead to fully depreciated properties in tax terms which can lead to lower costs and tax bills later.

By keeping these key points in mind, you can make a proper choice on negative gearing and your real estate. If you think it may be a good option for your real estate purchases, contact your tax accountant for assistance. Keep in mind you may only be able to use this method for one property or group of properties. You may also have to make some adjustments in order to begin the process. Regardless of your specific situation, your tax preparer or accountant will be able to help advise you on the proper steps and methods. 

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