The most common misconception about negative gearing is that it allows you to reclaim the entire shortfall between rental income and expenses from your tax bill.
The reality is that only a proportion of the above-mentioned losses can be claimed, in line with your marginal tax rate. So if you pay tax at 30 per cent, you can claim 30 per cent of the shortfall.
If you pay tax at 46.5 per cent, you can reclaim 46.5 per cent of the shortfall. That is why negative gearing is so much more effective for higher-rate taxpayers.
If you’re doing your sums based on being able to reclaim back all of your shortfall, it’s time to think again.
The free Investment Property Calculator was developed to help potential property investors to estimate how much they need to pay after they claim the tax credit from negative gearing.