Negative gearing – a hypothetical example
- Ahmed buys a $400,000 investment property with a deposit of $100,000.
- He gets a loan for $300,000 from a lender.
- He collects $300 per week in rent, or $15,600 per year.
- The loan is an interest-only mortgage with a rate of 4.2%. The initial interest charges are $1,050 per month, or $12,600 per year.
- Ahmed spends $1,000 on maintenance in the first year, $2,100 in strata fees and a further $2,000 in property manager fees, plus $1,000 on insurance.
- Together, these costs plus interest charges total $18,700. This is $3,100 more than he collects in rent.
Result: Ahmed is negatively geared and can deduct the difference from his taxable income.
Hi,
In the situation when I can’t find a tenant for my investment property and the property is left vacant for an extended period, Are the repayments made during this period tax deductible?
Thanks,
Raghu
Hi Raghu,
Thanks for reaching out.
You can still claim expenses for your investment property, such as the interest on loans, as long as the property is genuinely available for rent.
According to the Australian Taxation Office (ATO), if a property is genuinely available for rent, it must be advertised to potential tenants and tenants must be reasonably likely to rent the property. For more details, please speak with a tax accountant or visit the ATO’s rental property expenses to claim guide.
All the best,
Belinda