Negative gearing for dummies....??

[Arimeh]

My brother said its always best to borrow 100% on an investment property because you can claim all out of pocket expenses on your tax.

However, if something started as your residential property and then you move out and turned it into your investment property - you can't claim the interest you have to pay on your mortgage, something you can do if its 100% investment use only.

Thats how he explained it to us anyway.

[deletedit]

Arimeh's eden is partly right. You can only claim what you currently owe back on tax, so if your loan is small it might work out better if you sell that and buy both an investment and house for yourself. You can't just refinance so the loan is huge, its only what you borrowed to buy/renovate that counts. Don't forget capital gains tax - if you sell it you don't pay tax on the profit - if you move elsewhere and then sell down the track you'll pay tax on the part of the profit from after you left it.

Negative gearing is just claiming all the expenses back against the rent. You can claim interest (not the payments, just the interest), council rates, water, property manager fees and a raft of other stuff. If your expenses are higher than the rent, it reduces your income and you will get a tax refund. Otherwise, you have to pay tax on the rent you earn.

[briggsy's girl]

i don't know much about negative gearing from a tax POV, but something to keep in mind - whatever you have as an investment "loss" reduces your taxable income, so you pay less tax, but is added back on for FTB purposes so it doesn't reduce your ftb income at all