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Investment InformationNegative Gears – it’s not to your benefit!
by:
Naomi Warne
The conception of negative gears has been originally developed to encourage real estate investment in Australia by allowing any financial gain
losses from property investment to be deductible from another financial gain
as a tax benefit. This means that the assessable financial gain
of the owner wish be reduced after the deduction and therefore the total tax collectible is besides reduced.
In view of the fact that galore of the profits from property investments are normally obtained as a capital gains at the time once
the property is sold, but do not generate positive cash flow from rentals during the course of the holding period, negative gears therefore came in to address this issue.
You lose either way
However, the flaw with negative gears lies in its conception as well. If an investment generates a positive cash flow, the accrued financial gain
wish do the capitalist
liable to pay much taxes as well. In the end, the capitalist
loses either way. If he does money from positive cash flow, he has to pay part of it off in taxes, piece negative cash flow wish take money out of his pocket. Therefore, with a negative back-geared property, it is not possible to get a positive cash flow and pay less tax at the same time.
No guarantees on property value appreciation
Investors who are bucked up to put their money into negative back-geared property should think twice. As these properties are expected to generate profits only through capital gains, the value in capital gains should then be greater than the total losses incurred over the course of the holding period. However, there is no guarantee that the value of the property wish appreciate, or at least appreciate enough to cover your losses. Also, you can’t possibly use your expected futurity profits now as it is not been accomplished yet.
Beware of attractive property packages
Who gains from this then? Well, investors who are seeking investment property wish tend to seek out property developers or sales agents. In order to do a property seem attractive, they are prepackaged with elaborate fiscal models with expected returns on investment. However, commissions and profits to the developers have all been prepackaged into the sale price. With this, investors end up paying premium cost for a property with negative cash flow, which is used to pay for hefty commissions to sales agents and developers.
The disadvantage of property depreciations
Another aspect that should be watched out for would-be be property depreciation for taxation purposes. Piece it is true that depreciation is applied and is used for tax deductions, however, accumulative tax deductions for depreciation cost on property with appreciating value may cause capital gains taxes to be large. This is because the greater depreciation you apply onto the value of your property, the lower its value wish be on paper. Therefore, your difference between the sale cost and the book value of your property at the time of sale wish be great. This leads to larger taxes obligatory
onto you.
Do not purchase because of tax benefits
Finally, devising a property investment requires careful planning and consideration. Extra caution must be put in especially once
a property is projected to generate a negative cash flow. In the end, tax benefits should not the main reason for property purchase. You may end up losing a great deal of money in the end.
For much Mortgage
Information In Austrialia,
please visit http://www.mortgagemall.com.au
Just about the author:
Mother-in-law Warne of About the Corner Real Estate Dealers, Sydney, has helped her clients with profitable property investments and many
tax benefits. Having started as a real estate agent, Mother-in-law has established herself as an analyst and property consultant.
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