James is a full-time financial adviser at the NAB. He doesn’t work at home and uses his family home for private purposes. His monthly mortgage payments (only the interest expense part) are $2,200. In 2019, James bought a new apartment and earns $750 weekly as the renting revenue. The monthly mortgage payments (only the interest expense part) on this apartment are $2,000, and all other monthly cost related to this new apartment is $100. Which of the following statements is the most correct?Question 16Select one:a.James can claim both mortgage as his tax deduction.b.For his new apartment, it is negative gearing.c.For his residential home, it is positive gearing.This is wrong as James didn’t use his residential home to generate income.d.James’ taxable income will increase by $13,800 after purchasing the new apartment

The most correct statement is: "For his new apartment, it is negative gearing."

Here's why:

a. James cannot claim both mortgages as his tax deduction. In Australia, you can only claim the interest on a loan for an investment property, not your own home. So, he can only claim the mortgage on his new apartment.

b. For his new apartment, it is indeed negative gearing. Negative gearing is when the cost of owning a property (including interest on the loan, maintenance, and depreciation) is more than the income it produces. In this case, James' monthly costs for the apartment (including mortgage interest and other costs) are $2,100, while his monthly rental income is only$3,000. Therefore, he is making a loss on his investment, which is the definition of negative gearing.

c. For his residential home, it cannot be positive gearing because James doesn’t use his residential home to generate income. Positive gearing occurs when the income from an investment is higher than the interest and other expenses. Since James' home does not generate any income, it cannot be positively geared.

d. James’ taxable income will not increase by $13,800 after purchasing the new apartment. The rental income from the apartment will increase his taxable income, but the interest expense and other costs related to the apartment are tax-deductible, which will offset some of this increase. Therefore, without knowing more about James' overall financial situation, we cannot determine the exact impact on his taxable income.