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I am buying an investment property and want to take advantage of negative gearing. I have applied for a loan but the finance company are really slow and may not get the loan documentation ready by the settlement date.
I do have the funds to pay for the investment property outright, however, I would like to take advantage of negative gearing by taking out an investment loan and use my savings for other purposes.
If I paid outright for the property using my money at settlement and when the loan funds come through, have them paid to me (effectively re-financing my own funds), can I still claim the interest on this loan?
The purpose of the loan has always been to buy the investment property, it's just the timing of everything that has gone awray
No because the money borrowed is not directly related to the purchase of the house.
I am unsure why you think financially you would be better off owing money as interest repayments.
The math doesn't work out
Earn $100k, pay 8k in interest now have 92k.
Claim that 8k as a rental deduction, which will reduce the rental income and at most will reduce your taxable income by 8k and therefore you save 37% of that ($2,790)...
I would rather not pay that 8k, to begin with.
No because the money borrowed is not directly related to the purchase of the house.
I am unsure why you think financially you would be better off owing money as interest repayments.
The math doesn't work out
Earn $100k, pay 8k in interest now have 92k.
Claim that 8k as a rental deduction, which will reduce the rental income and at most will reduce your taxable income by 8k and therefore you save 37% of that ($2,790)...
I would rather not pay that 8k, to begin with.
I think the problem is that many people confuse the actual nature of negative gearing.
I have seen/read quite a few people that think that their tax liability is reduced by the whole of the interest ($8000) and not just the their top tax bracket multiplied by the interest ($2,790) as described in your example.
Also they seem to think that if the situtation is a posively geared loan or they own outright that paying tax makes it bad actually earning a profit upfront.
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