What is the difference between positive and negative gearing?
Negative gearing and tax
Negative gearing simply means that your costs (interest repayments, fees and related repair and maintenance expenses) are more than the income you receive from the property. This might not sound like a smart idea but it is if you want to pay less tax on your personal income. The negative return (or loss) may help take you down to a lower tax bracket, reducing the overall tax rate and the amount of tax you pay.
When deciding whether to negatively gear or positively gear, talk to a financial planning expert, and stay informed on the property and rental markets.
Positive gearing
Positive gearing is where the annual rental income received from the property is higher than the annual loan repayments and costs.
The benefit here is that you earn extra income but this is taxable. Also make sure you include the capital gains tax you will have to pay if you decide to sell the property.
Learn more about positive and negative gearing
