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Created with Fabric.js 1.4.5 interestpayments What is Negative Gearing? $200K $200K $1M 2014 $20Kcapital gain $100K capitalgain Neutral Gearing Positive Gearing Negative Gearing = > Most real estate investors in Australia use gearingstrategies when investing in property. Borrowing capital from a bank in addition to investing own capital allows investors to buy larger properties that can potentiallybring a bigger gain when sold. It also provides income and tax benefits. rent 94% gear their investments only 6% of property investorsown the property outright + expenses Neutrally geared investment property generates no yearly income or loss and has no effect on income taxes, unlessthe property is sold for capital gain where CGT would apply. > + + Income tax calculation under positively and negatively gearedproperties create higher taxes and tax benefits respectively salary taxable income rentalincome less taxes net income $70,000 $70,000 $26,000 $26,000 less - $41,000 - $5,000 - $5,000 $50,000 - $11,000 $80,000 - $8,547 - $19,147 $60,853 $61,453 $20,000 tax benefit $0 Net income with $70,000 salary without propertyinvestment income or loss. $54,303 source: ATO Being able to purchase a bigger property this yearwill allow bigger capital gain next year. $800K Capital gain Yearly Income 2015 Why Gear? Investors can buy a property outright or put up a depositand borrow the rest from a bank. At a healthy yearly home price growth rate, capital gains on property investments can increase significantly $1.1M $220K Negative gearing allows investors to keep their incomewhen they are making a loss on their propertyinvestments. direct geared It is a short term strategy using interest loss for capital gain in the future. It bears a risk in marketdownturn - negative capital gain and net incomeloss from principal payments. Property Investment Brick by Brick
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