Negative Gearing Calculator (Australia)
This calculator helps investors in Australia understand the potential financial benefits of negative gearing. By entering your specific data, you can estimate your tax savings and net income impact.
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Data Source and Methodology
All calculations are based on the Australian Taxation Office guidelines. For more detailed information, refer to the ATO website. All calculations are strictly based on the formulas and data provided by this source.
The Formula Explained
Interest Cost: \( \text{Loan Amount} \times \frac{\text{Interest Rate}}{100} \)
Net Income Loss: \( \text{Annual Interest} + \text{Annual Expenses} - \text{Annual Rent} \)
Tax Savings: \( \text{Net Income Loss} \times \text{Marginal Tax Rate} \)
Glossary of Terms
- Property Value: The market value of the property.
- Loan Amount: The total borrowed amount.
- Interest Rate: The annual interest rate on the loan.
- Annual Rent: Total rent received in a year.
- Annual Expenses: Total expenses incurred in maintaining the property.
- Tax Savings: Estimated reduction in tax due to negative gearing.
Practical Example
Consider a scenario where the property value is $500,000, loan amount is $400,000 at an interest rate of 5%, annual rent is $25,000, and annual expenses are $5,000. The tax savings would be calculated as follows...
Frequently Asked Questions (FAQ)
What is negative gearing?
Negative gearing occurs when the income from an investment property is less than the expenses of owning it, resulting in a loss that can be offset against other income for tax benefits.
How does negative gearing benefit me?
It can reduce your taxable income, leading to tax savings, and potentially increase your total return on investment.
What is a marginal tax rate?
Your marginal tax rate is the rate of tax you pay on an additional dollar of income.
Can I claim all expenses on my investment property?
Only expenses related to earning rental income, such as maintenance and interest, can be claimed.
Is negative gearing suitable for everyone?
It depends on your individual financial situation and investment goals. Consult with a financial advisor.