Effect of Income on Negative Geared Investment Property

Tax is one of the main reasons why negatively geared investment property is so popular. The losses that you make in renting your investment property can be offset against your other (salary) income. The tax savings that you make can change a negatively geared property into a positive geared investment.

The level of your income will have a significant impact on the after tax returns of your investment property. Those in the top tax bracket (46.5% over $180,000) will receive a bigger tax benefit than those on lower tax brackets. The full time male average income is about $74,000 which is in the 31.5% tax bracket.

I have used the examples below using our Negative Gearing Calculator to illustrate the effect of the level of income on your investment property returns. In each case, all variables are the same except for the income level, which in $80,000 in example 1 and $200,000 in example 2.

Example 1:

Negative Gearing Calculator Income $80K

The cost per week is $14.54 on an income of $80,000 and the property is still negatively geared.

Example 2:

Negative Gearing Calculator Income $200K

The higher level of income means that the property is now positively geared and the investor is $22.15 better off after tax per week.

Our Negative Gearing Calculator enables you to test a variety of different variables including the effect of interest rate rises on your after tax income.

This Post Has 2 Comments

  1. Clive

    Hi Arnold, thank you for your calculator .
    If the property price is $390000 and the loan amount is $300000, where did the other $90000 come from? Even if you drew it from equity in your home, it should be accounted for; you’ve just spent $90000 that could have been invested elsewhere! For the average wage earner in example 1 it’s clear that investing in property will not work for them. Sure if you’d bought before the boom you’d be ahead, but with prices so high now it’s hard to make property qualify as an investment.

  2. Arnold

    Thanks Clive,
    If you drew the other $90,000 from equity in your home, then the loan amount would be $390,000.

    Assuming the the deposit came from savings, the opportunity cost of the use of the $90,000 is not taken into account in this calculator.

    Rather than make a complicated calculator that covers everything, we just wanted to answer 2 primary questions – what is the after tax cost per week of buying a property and how many years before the investment becomes cash flow positive on an after tax basis.

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