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Negative Gearing claim

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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

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Best answer

Taxicorn

Replies 1

@Investor62 

 

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.

 

 

 

2 REPLIES 2
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Best answer

Taxicorn

Replies 1

@Investor62 

 

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.

 

 

 

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Devotee

Replies 0

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.