What is Negative Gearing?

When you decide to put your money into investments, the options can seem endless. For many people, the answer is investment rental property and with that comes many financing options available to choose from. Deciding which approach is the best for you will depend on many variables but one choice that continues to gain favor with those seeking to build rental income is negative gearing.

Negative gearing is a popular long-term investment strategy in which an individual invests in a property where the cost of that property exceeds the income taken in. In other words, the amount of the interest incurred is greater than the rental payments you are receiving from tenants. Negative gearing provides immediate tax benefits and the promise of long-term gains but this investment strategy isn’t for the faint of heart.

Perhaps the biggest draw for negative gearing is that interest on the investment property home loan is completely tax deductible. This feature can save investors a considerable amount of money on their taxes because even if they are losing money through rental payments that don’t cover the investor’s costs, the investor can take deductions that, in turn, lower the investor’s taxable income.

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