How does Tax Depreciation affect the Negative Gearing equation?
Tax Depreciation greatly enhances the annual real return of an investment property. A scenario is provided to illustrate how the equation changes once depreciation (a non-cash deduction) is applied to a scenario where the investor is in the top tax bracket of 48.5%. This simple example clearly shows the impact of depreciation on the after tax cash outlay per week. There is a significant difference in the after tax cash outlay when depreciation is applied demonstrating the importance of maximising this ‘non-cash’ tax deduction. Without depreciation there is a significant negative cost to the investor totalling $151 per week. Employing a specialist to maximise the available depreciation significantly enhances the investor’s cash flow position. Total cash outlay reduces to $60 per week. Information courtesy of BMT & Associates are preferred provider of tax depreciation schedules.
