Basic negative gearing question - Aussie Stock Forums

# Thread: Basic negative gearing question

1. ## Basic negative gearing question

Again, let’s take the above example of the \$200,000 investment property and how it might affect your cashflow. Let’s say you and your partner are both on tax rates of 30%.

So:

1.Rental Income \$15,000
less
Interest costs \$16,000
Other costs \$4,000
Depreciation etc \$2,000

Net loss \$7,000
@ 30% tax rate \$2,100 refund.
My question is, why is a person's tax rate applied to that net loss? My initial (and very basic) understanding of negative gearing was that the whole of that net loss (ie. the \$7,000) could be used to offset your personal income tax?

Thanks for putting up with a newbie question.

2. ## Re: Basic negative gearing question

Originally Posted by Tyler Durden

My question is, why is a person's tax rate applied to that net loss? My initial (and very basic) understanding of negative gearing was that the whole of that net loss (ie. the \$7,000) could be used to offset your personal income tax?

Thanks for putting up with a newbie question.
In short, you have misunderstood negative gearing. The net loss of \$7000 is applied to your marginal income tax rate, 30% in this example, and you are reimbursed accordingly.

3. ## Re: Basic negative gearing question

1.Rental Income \$15,000
less
Interest costs \$16,000
Other costs \$4,000
Depreciation etc \$2,000

Net loss \$7,000
@ 30% tax rate \$2,100 refund.
They applied it to the loss in isolation to show you the effect of tax on it.

Say your income is \$60,000. The amount above \$35,000 is taxed at 30%. i.e. \$25,000@30%.

Ignoring offsets and other factors, let's assume the figure is \$25,000 - \$7,000 = \$18,000 so 30% of 18,000 = \$5400 payable.

Or in separate income-loss parts, 30% x 25000 - 30% x 7000 = 7500 - 2100 = \$5400 payable.

So they are effectively pulling \$2100 out of the above to show how it's factored in.

4. ## Re: Basic negative gearing question

Great, now I understand. Thanks guys

5. ## Re: Basic negative gearing question

Hi Tyler,

Hope Joe doesn't mark this as spam but thought you might find this guide on property and negative gearing useful.

What is negative gearing?

Regards,

Dave

6. ## Re: Basic negative gearing question

Originally Posted by davede
Hi Tyler,

Hope Joe doesn't mark this as spam but thought you might find this guide on property and negative gearing useful.

What is negative gearing?

Regards,

Dave
Thanks Dave, much appreciated

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