From Gowdie Family Wealth (AUS) – Explaining Negative Gearing to Your Children
‘Is negative gearing a smart idea for an investment property?’
My 22-year old daughter
The political divide over negative gearing has generated an awful lot of commentary of late.
Will abolishing it (for existing properties) decimate the market? Will it take away the incentive to invest in property? Would eliminating negative gearing (on existing homes from January 2017) raise expected revenues?
Both sides that are either for or against negative gearing have their computer models that, not surprisingly, support their particular point of view.
The person on the street, when considering what negative gearing really is, tend to respond with, ‘it’s a property investment’; or ‘it’s a way to save tax; or ‘it’s better than superannuation’.
In (not so) simple terms, negative gearing involves making an income loss — offset against other taxable income — in the hope that a future capital gain is greater than the after-tax losses. Got it?
My daughter didn’t quite get it either. I tried explaining it from a different angle, which I’ll repeat here.