Is It Better to Invest Property with Low Negative Gearing but High CGT or Otherwise?

Frankensnore on 28/08/2024 - 08:11
Last edited 28/08/2024 - 08:11

My partner earns much lower income than I am, and we are considering to purchase a property.

My question is, do you think it is better to purchase as myself who has higher income, thus get higher negative gearing, however I have to pay that when selling with higher cgt.

Or, should we purchase as my partner who has low to nothing income. That means all net expenses is a loss, however if selling one day we pay little tax.

We have no plan to sell soon, but will sell eventually. Maybe when cash is short or when we approach retirement.

Another option is 50-50, which spreads out the negative gearing and cgt.

Poll Options

  • 23
    Buy with the higher income tax
  • 3
    Buy with the lower income tax
  • 3
    Buy 50-50
Financial

Comments

  • CyberMurning on 28/08/2024 - 08:19
    +4

    Buy positive geared.

    • HardQuiz on 28/08/2024 - 08:27
      -3

      Why?

      • capslock on 28/08/2024 - 08:32
        +19

        I guess at the end of the day making a profit is better than making a loss.

        • CyberMurning on 28/08/2024 - 13:55
          +2

          Yep. If someone told you negative is better, they must be a propety agent and want to make easy sell. And they smile at you but they totally are on the seller side.

          • Bdawg on 28/08/2024 - 16:03

            @CyberMurning: Well I think the general expectation is that negatively geared properties will tend to have higher capital appreciation. Whether this is so or not… I personally have opted for positively geared properties and have no regrets (and fantastic appreciation to boot).

            • CyberMurning on 28/08/2024 - 18:23

              @Bdawg: Nah, usually the negatives are overpriced apartments, with high stratas fees. Increase capital yes but long term will depreciate as building get old and issues arrises.

              • Bdawg on 29/08/2024 - 09:26

                @CyberMurning: Yeah, expensive units are a mug's game. I don't like units in general, strata fees make the real cost a lot higher than people think. Plus as you say the risk is no bueno.

    • HeWhoKnows on 29/08/2024 - 15:19
      -1

      From a land tax point of view and also from a 1st home owners grant point of view its much better to buy separately.

      Also as OP hasnt said they are married any breakup would make matters extremely complicated!

      • CyberMurning on 29/08/2024 - 15:38

        prenup!
        it should be in standard of every marriage. just like marriage certificate. at the back of it is the prenup. cant do one without another

  • BigBirdy on 28/08/2024 - 08:44
    +2

    You are the best equipped to answer these questions, and you have the ability to control (to a degree) the outcomes thru your own future strategy choices. Asking random strangers to guide you is a recipe for poor decision making.

  • overthinking on 28/08/2024 - 08:47
    +2

    the correct advice is talk to a financial advisor

    I doubt many people on here are qualified to give you proper advice

    maybe try https://www.propertychat.com.au/community/

    • Jake D on 28/08/2024 - 09:55
      +5

      Property chat, yes.
      Finacial Advisor, no.

      But also, pay an accountant for tax advice.

  • DingoBilly on 28/08/2024 - 08:49
    +2

    Higher income.

    You get money now you can invest elsewhere to start earning compounding returns on.

    You also get a discount on tax. With negative gearing you pay less tax on 100% of the negative gearing. When selling you pay tax on 50% of your capital gain, so it's a decent discount. This is the CGT discount when you hold an asset for over 12 months.

  • ForkSnorter on 28/08/2024 - 08:49
    +3

    50-50, because if only one person buys it under their name, legally only that person owns the house.

    By the way, a person with low income can't buy a house. The bank won't lend you the money. Unless you have a heap of cash, in which case you would be better off investing in the house you live in, because you won't pay any tax at all when you sell it.

    • donga100 on 28/08/2024 - 10:37
      +5

      if only one person buys it under their name, legally only that person owns the house.

      Family Law Court respectfully disagrees.

      • DingoBilly on 28/08/2024 - 11:42

        Yep… acting as if a divorce/separation wouldn't mean you just split the assets 50/50…

      • CyberMurning on 28/08/2024 - 13:56
        -1

        Thats not a fair law!

    • Bdawg on 28/08/2024 - 16:04

      "…in which case you would be better off investing in the house you live in." That is terrible advice. That's like saying invest in a car.

      • ForkSnorter on 28/08/2024 - 17:50

        Not really. Over the past few decades, the values of high-end properties have increased much faster than standard properties, plus the profits are higher.

        Imagine 5 years ago, you have the cash to buy either a $2 million property and live in it, or two $1 million properties and rent one of them out. The more expensive property likely went up in value much more than the $1 million properties. Today, with a tiny bit of renovation that $2 million property could easily be worth $3.5 million, whereas the two $1 million properties might be worth $1.4 million each, total of $2.8 million. Plus, if you sell the house you live in you pay no tax and keep all the profit, so you’re left with much higher profit.

        So, say you sold, you would have a potential profit of $1.5 million with no tax to be paid, vs a potential profit of, say, $650,000 after you’ve paid CGT on the investment property.

        I’m ignoring the rental income here, but 5 years at $600/week is only $150,000, minus tax = roughly $100k.

        In some instances, actually not buying an investment property can be better for you financially if you don’t need the rental income to pay off the loan. Plus investing in rental properties is not always smooth sailing.

        • Bdawg on 29/08/2024 - 09:29

          Renovating a property you are living in isn't investing though… unless you renovate it to sell it imminently. My friend spent a fortune renovating his house that he just bought, then complained to me he was having trouble with his mortgage payments.

          I told him what I tell all novices, if you have a mortgage, consider every dollar that you spend as a dollar borrowed. He did not listen though.

          • ForkSnorter on 29/08/2024 - 09:57

            @Bdawg: You are not really thinking in terms of higher-end properties. This is where a lot of profits are made. Yes, renovating lower end properties might not make you much money.

            • Bdawg on 29/08/2024 - 10:42

              @ForkSnorter: I'm saying don't renovate it until you want to sell it. Otherwise it's just dead money until sold and the renovation depreciates over time also.

    • SlickMick on 29/08/2024 - 07:25

      50-50, because if only one person buys it under their name, legally only that person owns the house.

      That's the reason for putting it in 1 person's name

      By the way, a person with low income can't buy a house

      Banks have no issue taking spouses's money for your property if they're willing to sign

  • jlien on 28/08/2024 - 09:28
    +1

    if the bank will lend you the money on your income alone; then yes it's better to buy in the name of the higher income.

    You'll get higher return on your negative gearing so long as you're on a higher tax bracket than your partner.

    You're not going to be selling within a year; so the 50% CGT discount will mean you end up ahead anyway. Even better if you never sell it and realise those CGs

  • Ozbar Gain on 28/08/2024 - 10:27

    How will partner on low income qualify for finance?

    • CyberMurning on 28/08/2024 - 13:56
      +1

      Bikies

    • Frankensnore on 28/08/2024 - 14:36
      +1

      Rules is different in my state that the finance can come from both but the title is just from one.

      Almost like a guarantor

      • Jake D on 28/08/2024 - 15:34
        +1

        Depends on lender.

        you could always both be on the loan, but apportion whatever percentage you want to the title as "tenants in common". Then the lender doesn't matter.

  • JimB on 28/08/2024 - 11:09

    What's the estimated negative gearing per annum?

    What property type and which suburb is this high capital growth property?

    When is property likely, if ever become positively geared?

  • SlickMick on 29/08/2024 - 07:34

    In my experience, things change. (My wife returned to work and her career took off while mine hit a deadend.)
    Negative gearing is only useful for reducing tax for the high income earner.

    Also, the CGT saving for the lower income earner is only ~$18,000. It's a lot of money, but not when compared to the CGT if you hold it long enough.
    Another option is buying in super. The loan is more expensive, but if you hold the property till retirement, avoiding CGT eclipses all other savings.

    • kiitos on 29/08/2024 - 08:52

      How do you avoid CGT in that situation?

      • SlickMick on 29/08/2024 - 12:03

        There's no tax (income or CG) on super once in pension mode.

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