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Basic negative gearing question

Discussion in 'Beginner's Lounge' started by Tyler Durden, Jun 5, 2011.

  1. Tyler Durden

    Tyler Durden

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    I read this article from news.com.au about negative gearing. The relevant bit is as follows:

    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. YELNATS

    YELNATS Non illegitimus carborundum

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    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. bbker

    bbker

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    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. Tyler Durden

    Tyler Durden

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    Great, now I understand. Thanks guys :)
     
  5. davede

    davede

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    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. Tyler Durden

    Tyler Durden

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    Thanks Dave, much appreciated :)
     
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