Negative gearing is often discussed with regard to real estate, where rental income is less than mortgage loan interest costs, but may also apply to shares in companies whose dividend income falls short of interest costs on a margin loan.
The different tax treatment of planned ongoing losses and possible future capital gains affects the investor's final return.
Some countries, including Australia and Japan, allow unrestricted use of negative gearing losses to offset income from other sources.
Several other Organisation for Economic Co-operation and Development countries, including the United States of America, New Zealand, Germany, Sweden, Canada, and France, allow loss offsetting with some restrictions.
Applying tax deductions from negatively geared investment housing to other income is not permitted in the United Kingdom or the Netherlands.
The tax treatment of negative gearing (also termed "rental loss offset against other income") varies.
[4] Analysis found that negative gearing in Australia provides a greater benefit to wealthier Australians than the less wealthy.
[5] Federal Treasurer at the time, Scott Morrison, in defence of negative gearing, cited tax data that showed that numerous middle income groups (he mentioned teachers, nurses, and electricians) benefit in larger numbers from negative gearing than finance managers.
A UK government online resource on renting out property in England and Wales[6] outlines how to offset losses.
The Opposition Labour Party attempted to raise negative gearing in the 2011 election, but after their failure to win government the issue reduced in significance.
Interest paid on a loan can be treated as a business expense, so long as the money was borrowed to generate income.
Interest on loans provided to finance real estate, expenses, and property-related cost (e.g., management fees, insurance) can be deducted from the taxable rental income.
Most citizens calculate tax, separately, in 3 income groups:[28] Dutch resident and non-resident companies and partnerships owning Dutch property are in principle allowed to deduct interest expenses on loans from banks or affiliated companies, and property-related costs from their taxable income.