Negative Gearing - What Is It?

Negative gearing occurs when you borrow money to invest in real estate that is expected to return less income than the cost of running the property. Thus negative gearing is the principle of losing money to get a tax reduction.

The Top 6 Reasons Why Negative Gearing Doesn’t Work:

• Negative Gearing of a property will result in the depletion of wealth
• There is a high risk associated with Negative Gearing as you are dependant on Capital Gains
• Negative Gearing can restrict your ability to borrow further funds from a lending institution, restricting the growth of your property portfolio
• Negative Gearing is limited to success in a fast growing market leading to Property Speculation rather than Property Investing
• Negative Gearing can attract extra taxes from state and federal governments
• Negative Gearing limits the profitability of the property during the period that it is negatively geared
  

Why Do People Negatively Gear Property?

Some financial advisors and tax accountants recommend negative gearing. Negative gearing can offer a tax break for people who have income tax problems. Despite this assessment negative gearing will almost always result in you losing more money than you earn from a tax break