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Negative Gearing - It's Not to Your Benefit!
The concept of negative gearing has been originally developed to encourage real estate investment in Australia by allowing any income losses from property investment to be deductible from other income as a tax benefit. This means that the taxable income of the owner will be reduced after the deduction and therefore the total tax payable is also reduced. In view of the fact that many of the profits from property investments are usually obtained as a capital gains at the time when the property is sold, but do not generate positive cash flow from rentals during the course of the holding period, negative gearing therefore came in to address this issue. You lose either way However, the flaw with negative gearing lies in its concept as well. If an investment generates a positive cash flow, the increased income will make the investor liable to pay more taxes as well. In the end, the investor loses either way. If he makes money from positive cash flow, he has to pay part of it off in taxes, while negative cash flow will take money out of his pocket. Therefore, with a negative 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 encouraged to put their money into negative 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 will appreciate, or at least appreciate enough to cover your losses. Also, you can't possibly use your expected future profits now as it is not been realized yet. Beware of attractive property packages Who gains from this then? Well, investors who are seeking investment property will tend to seek out property developers or sales agents. In order to make a property seem attractive, they are packaged with elaborate financial models with expected returns on investment. However, commissions and profits to the developers have all been packaged into the sale price. With this, investors end up paying premium price 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 property depreciation for taxation purposes. While it is true that depreciation is applied and is used for tax deductions, however, accumulative tax deductions for depreciation costs 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 will be on paper. Therefore, your difference between the sale price and the book value of your property at the time of sale will be great. This leads to larger taxes imposed onto you. Do not purchase because of tax benefits Finally, making a property investment requires careful planning and consideration. Extra caution must be put in especially when 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 more information, please visit Mortgage Mall Australia. Naomi Warne of Around the Corner Real Estate Dealers, Sydney, has helped her clients with profitable property investments and numerous tax benefits. Having started as a real estate agent, Naomi has established herself as an analyst and property consultant.
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WSVN 7News | Miami News, Weather, Sports | Fort Lauderdale Rules that helped set real estate agent commissions are changing. Here's what you need to know Lufkin Daily News Central Texas housing experts talk impacts from $418M real estate settlement - 25 News KXXV and KRHD Central Texas housing experts talk impacts from $418M real estate settlement 25 News KXXV and KRHD What National Association of Realtors agreement means for Texas real estate KAMR - MyHighPlains.com Rules that helped set real estate agent commissions are changing. Here's what you need to know KXLY Spokane A luxury agent on how the NAR settlement will change his business The Washington Post What Seattle-area homebuyers should expect after national settlement The Seattle Times National lawsuit could shakeup housing market, cut into real estate agent commission 11Alive.com WXIA Cities Face Cutbacks as Commercial Real Estate Prices Tumble The New York Times CrewBaltimore’s mission to accelerate women’s success in real estate Afro American Newspaper Swimmo Invest Opens up a New Chapter in the Real Estate Industry Markets Insider Will March bring more madness to Craven County's real estate market? 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Industry Reacts to Settlement That Could Slash Commissions Hollywood Reporter Foreclosures Are Rising—Especially in This One State—but Not for the Reason You Might Think - SFGATE China's Real-Estate Market Just Set a Record—but Not a Good One The Wall Street Journal Rules that helped set real estate agent commissions are changing. Here's what you need to know News10NBC Real estate lawsuit settlement upends decades-long policies that helped set agent commissions WQAD Moline Chicago Voters Face Choice on Tax to Fund Homeless Programs The New York Times Manhattan Real Estate Update westsiderag.com Realtors Reach Settlement That Will Change How Americans Buy and Sell Homes The Wall Street Journal The NAR Settlement's Impact On Commissions And Home Prices Financial Samurai End of 6% real estate commissions could mean lower home prices The Atlanta Journal Constitution Artis Real Estate Investment Trust (OTCMKTS:ARESF) and Armada Hoffler Properties (NYSE:AHH) Financial Analysis Defense World A Look Into the Future of Home Buyers' Agent Commissions The Wall Street Journal Bridgemarq Real Estate Services (TSE:BRE) Share Price Passes Above Two Hundred Day Moving Average of $12.93 Defense World Agent Migration and the Power of New Mike DelPrete National Association of Realtors to cut commissions to settle lawsuits. 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