Negative Gearing

Negative gearing is a strategy wherein an investor takes out a loan to buy an asset, but the asset does not generate enough income to cover interest on the loan. In Australia, it usually refers to the borrowing of money to buy a residential property for leasing. In this case, negative gearing occurs when the total rents paid are less than the interest. Although generally a risky practice, negative gearing pays off in terms of tax deductions. Maintenance, property fixtures, and depreciation are all tax-deductible, and capital gains tax also enjoys a partial deduction.