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The absolute beginner’s guide to negative gearing

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Your Investment Property | 16 Apr 2015, 12:00 AM Agree 0
If you’ve always wondered what negative gearing was all about but were afraid to ask, you can now finally make sense of the concept with this easy-to-understand guide by Eddie Chung.
  • blackbenny | 07 May 2015, 04:46 PM Agree 0
    Great article and well set out!
    Think though you may have missed a couple of things in regards to the calculations:
    - the annual interest expense on the loan is $400,000 x 5.5% = $22,000. (so use $22k instead of the $27.5k).
    - when you calculate CGT you need to add back all the depreciation claimed.
  • Pete | 27 Oct 2015, 07:57 PM Agree 0
    A poorly written article that I am surprised YIP has allowed to be published.

    An inaccurate set of calculations and foolishly omitted data to calculate the final ROE and profit obtained leads those who "have always wondered what negative gearing was all about" down the garden path and is a disgrace.

    Blackbenny highlighted the poor maths and incorrect cost base used for the capital gain by not adding back the depreciation.

    Other critical items missed were the closing costs of the purchase (Stamp Duty, mortgage registrations, legal fees) and disposal costs of the property (agent and legal fees). These combined are in the order of 6-8% of the total costs of the property, or $30,000-$40,000.

    The article does state "ignoring other incidental costs", but this is highly inappropriate where using calculations to make a comparison on ROE.

    The stated tax rate of 51.5% is another poor attempt at basic maths. 45% marginal tax rate 2% medicare 2% budget repair levy 1.5% levy surcharge is 50.5%. Further, no one in their right mind would allow that extra 1.5% medicare surcharge to be incurred by not having the minimum private health insurance policy in place. For example on $200,000 salary a 1.5% levy is $3000. I am paying around $1500 per yr for private health insurance for my family to avoid the surcharge.

    Finally, only a very small percentage of tax payers are in the highest tax bracket. The article is poor in that it does not show the same example using lower salary for fair comparison.

    Overall a poor piece of research which could lead many down the garden path.
  • | 04 Jun 2016, 08:46 AM Agree 0
    Re the comment above about no one in their right mind paying the 1.5% Medicare levy surcharge - I pay this.

    I would rather pay this surcharge and boost our public health system than line a multinational's pocket by paying for crap (basic) private health care.
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