Negative Gearing Australia 2026: Ultimate Guide + Free Calculator
Maximize your property investment returns with Australia's most comprehensive negative gearing guide. Calculate your potential tax savings with our free calculator, explore real-world examples, and discover whether negative gearing is the right strategy for your property portfolio in 2026.
Contents
1. What is Negative Gearing?
Negative gearing is an investment strategy where the costs of owning and maintaining a property exceed the rental income it generates. The resulting loss can be used to reduce your taxable income, lowering your overall tax bill.
📘 Simple Definition
Negative Gearing: When your rental property expenses (loan interest, rates, insurance, maintenance) are greater than your rental income, creating a tax-deductible loss.
Want to maximise depreciation claims? Read our Depreciation Calculator Guide and estimate Division 40/43 with the Depreciation Calculator. Calculate your negative gearing impact with our Rental Property Calculator and Investment Property Tax Calculator.
For example, if your property costs $30,000/year to own but only generates $25,000 in rent, you have a $5,000 loss. This loss reduces your taxable income from your job or business, meaning you pay less tax.
2. How Negative Gearing Works
The Australian Tax Office (ATO) allows you to offset rental property losses against your other income. Here's the step-by-step process:
The Negative Gearing Process:
- 1. Purchase an investment property (usually with a mortgage)
- 2. Rent it out to generate income
- 3. Claim all deductible expenses:
- Loan interest (not principal)
- Property management fees
- Council rates, strata levies
- Insurance premiums
- Repairs & maintenance
- Depreciation (building + fixtures)
- Water charges, utilities
Learn more about what you can claim in our detailed guide: rental property tax deductible expenses
- 4. Calculate the loss: If expenses exceed rental income
- 5. Offset against your taxable income from salary, business, etc.
- 6. Receive a tax refund or reduced tax bill
3. Tax Benefits Explained
The main benefit of negative gearing is reducing your taxable income. Here's how the tax savings work. For a complete breakdown of all landlord tax deductions you can claim, see our comprehensive guide on landlord tax deductions in Australia 2026.
| Income Bracket | Marginal Tax Rate | $10K Loss Tax Saving | $20K Loss Tax Saving |
|---|---|---|---|
| $45,001 - $135,000 | 30% | $3,000 | $6,000 |
| $135,001 - $190,000 | 37% | $3,700 | $7,400 |
| $190,001+ | 45% | $4,500 | $9,000 |
Key insight: Higher income earners save more tax from negative gearing because they're in higher tax brackets. Someone earning $190K+ saves 45% of their rental loss in tax, while someone earning $60K saves 30%.
⚠️ Important Note
You're not making money from the tax deduction — you're losing less money. A $10,000 loss that saves $3,700 in tax still costs you $6,300 out of pocket. Negative gearing only makes financial sense if the property appreciates in value over time (capital gains).
4. Real Example with Numbers
Let's look at a realistic example of negative gearing in action:
Example: Brisbane Apartment
Property Details:
- Purchase price: $550,000
- Loan: $495,000 (90% LVR) at 6.5% interest
- Rental income: $550/week ($28,600/year)
Annual Expenses:
- Loan interest: $32,175
- Property management (8%): $2,288
- Council rates: $1,800
- Strata levies: $4,200
- Insurance: $1,200
- Repairs & maintenance: $2,000
- Depreciation: $8,000
- Total expenses: $51,663
Annual Loss:
Rental income ($28,600) - Expenses ($51,663) = -$23,063 loss
Tax Savings (37% bracket):
$23,063 × 37% = $8,533 tax refund
Out-of-Pocket Cost:
$23,063 loss - $8,533 tax saving = $14,530/year ($279/week)
In this example, the investor pays $279/week out of pocket to own this property. The strategy is profitable only if the property appreciates by more than $14,530/year (around 2.6% p.a.).
💡 Want to run your own numbers?
Use our free calculators to model your investment property scenario:
Best for: Quick rental yield and cashflow analysis. Calculate your gross/net rental yield, weekly/annual income, and basic ROI. Ideal for comparing properties or initial feasibility checks.
Best for: Detailed negative gearing and tax impact analysis. Includes depreciation (Div 40/43), all deductible expenses, and calculates your exact tax benefit or liability. Use this when preparing tax returns or optimizing deductions.
5. Benefits of Negative Gearing
- Tax deductions reduce your tax bill: Immediate cashflow benefit from lower PAYG withholding or annual tax refund
- Access to leverage: Banks lend up to 95% for investment properties, allowing you to control a $500K+ asset with $25K-50K deposit
- Potential capital growth: If property appreciates 5-7% annually, gains far exceed short-term losses
- Build wealth without high income: Borrow to invest even if you can't save large amounts
- Rental income grows over time: As rent increases, the property may become positively geared (profit-making) in 5-10 years
- CGT discount: If held 12+ months, capital gains are taxed at only 50% (after CGT discount)
6. Risks and Downsides
Negative gearing isn’t free money. Here are the major risks you need to consider:
Quick Risk Checklist:
- Property value may not increase as expected
- Out-of-pocket costs can strain your cashflow
- Interest rate rises can double your expenses
- Policy changes could reduce or remove tax benefits
- Depreciation claims may increase your future capital gains tax
❌ Property Doesn’t Appreciate
If your property stays flat or falls in value, you may pay thousands per year for little or no return. In markets with low growth or oversupply, negative gearing can reduce wealth instead of building it.
❌ Cashflow Pressure
Paying $10K–$20K/year out of pocket requires stable income. Job loss, interest rate rises, or vacancies can quickly become unaffordable, forcing you to sell at a loss.
❌ Interest Rate Increases
A 2% interest rate rise on a $500K loan adds $10,000/year in costs. Your out-of-pocket expenses can double if rates spike, making the investment unsustainable.
❌ Policy Changes
Negative gearing has been debated politically for years. Future governments could cap or remove the tax benefit, eliminating the primary advantage of this strategy.
❌ Depreciation Recapture
All depreciation claimed reduces your CGT cost base. When you sell, you pay capital gains tax on a larger amount, clawing back some of the tax benefit you received over the years.
7. Negative vs Positive Gearing: Side-by-Side Comparison
Understanding the difference between negative and positive gearing is crucial for your investment strategy. Here's a detailed comparison with real dollar examples to help you decide which approach suits your goals.
Negatively Geared Property
Property: $600K Sydney apartment
Loan: $540K @ 6.5% = $35,100/year interest
Rental Income: $28,000/year
Other Costs: $7,000/year (rates, strata, insurance)
Annual Loss: $14,100
Tax Saving @ 37%: $5,217
Out-of-Pocket: $8,883/year
Betting on 5-7% annual capital growth ($30K-42K/year)
Positively Geared Property
Property: $400K regional house
Loan: $320K @ 6.5% = $20,800/year interest
Rental Income: $28,000/year
Other Costs: $4,500/year (rates, insurance, maintenance)
Annual Profit: $2,700
Tax Owed @ 37%: $999
Net Income: $1,701/year
Slower growth (3-4%/year = $12K-16K) but immediate cashflow
10-Year Outcome: Negative gearing wins if Sydney apartment grows $300K+ (outweighing $88K in losses). Positive gearing provides $17K cash + $120K-160K growth with zero stress.
| Aspect | Negative Gearing | Positive Gearing |
|---|---|---|
| Cashflow | Loss (costs > income) Requires $5K-$25K/year from your pocket | Profit (income > costs) Generates positive monthly income |
| Tax Treatment | ✅ Deduct loss from taxable income $10K loss = $3.7K tax refund @ 37% bracket | ❌ Pay tax on rental profit $10K profit = $3.7K tax owed @ 37% bracket |
| Capital Growth Dependency | High Must grow 5-7%/year to break even on losses | Low Profitable even with modest 3-4% growth |
| Risk Tolerance | Higher (requires stable income + market growth) | Lower (self-funding, immediate returns) |
| Best For | High income earners (37-45% tax bracket) Lawyers, doctors, IT managers | Retirees, passive income seekers, lower income Need cashflow now, not in 10 years |
| Typical Property | Inner-city apartments/houses, capital cities Sydney, Melbourne CBD/inner suburbs | Regional towns, high-yield suburbs Mining towns, tourist areas, outer suburbs |
| Rental Yield | Low (2.5-4%) $600K property = $25K rent/year | High (5-8%) $400K property = $28K rent/year |
Which is better? It depends on your goals:
- Choose negative gearing if you have stable high income, can afford losses for 5-10 years, and are targeting capital growth markets (Sydney, Melbourne inner suburbs)
- Choose positive gearing if you need immediate cashflow, are risk-averse, or are investing for retirement income (regional high-yield areas)
8. Is Negative Gearing Right for You?
Negative gearing works best in these scenarios:
✅ Negative Gearing Makes Sense If:
- ✅ You earn $100K+ (ideally $150K+) and pay 37-45% tax
- ✅ You have stable employment with 6-12 months emergency fund
- ✅ You can afford $10K-25K/year out-of-pocket costs
- ✅ You're investing for 10+ years (long-term capital growth)
- ✅ You're buying in established capital growth markets
- ✅ Interest rates are stable or falling
- ✅ You understand the risks and have a backup plan
❌ Avoid Negative Gearing If:
- ❌ You earn under $80K (tax benefit too small)
- ❌ You can't afford to cover losses for extended periods
- ❌ You need immediate cashflow from your investment
- ❌ You're buying in low-growth or oversupplied markets
- ❌ Interest rates are rising sharply
- ❌ You're relying on negative gearing to afford the property
- ❌ You're nearing retirement (cashflow becomes critical)
9. Tracking Expenses for Tax Time
To maximize your negative gearing tax deductions, you must track every deductible expense:
📊 Track These Expenses:
- Loan interest statements (monthly)
- Property management invoices
- Council rates notices
- Strata levy invoices
- Insurance premiums
- Repairs & maintenance receipts (every Bunnings trip!)
- Water, utilities (if landlord-paid)
- Depreciation schedule (from Quantity Surveyor)
- Travel to inspect property (mileage log)
New to depreciation? Our Depreciation Calculator Guide explains Division 40/43 and low-value pool rules, and the Depreciation Calculator helps forecast claims for your properties.
Pro tip: Use digital tools to capture receipts immediately. Missing receipts = missed deductions = higher out-of-pocket costs. With multiple properties, organization becomes critical.
Track Your Rental Properties Efficiently
Managing multiple negatively geared properties? Track expenses, depreciation, and losses across all your investments with property-specific reporting.
🧮 Calculate Your Negative Gearing Tax Savings
Use our free rental property calculator to instantly calculate your tax deductions, cashflow, and potential returns.
✓ Calculate rental income & expenses • ✓ Estimate tax savings by bracket • ✓ Project 10-year returns
Instant Analysis
Get immediate cashflow projections and tax impact analysis
Tax Bracket Optimization
See exactly how much you'll save based on your income
Growth Projections
Model different capital growth scenarios over 10 years
No signup required • Takes 2 minutes • ATO-compliant calculations
10. Frequently Asked Questions
Can I negatively gear my main residence?
No. Your principal place of residence (the home you live in) cannot be negatively geared. You can only claim rental property deductions on investment properties that generate assessable income. However, you can claim deductions if you rent out part of your home (e.g., a room on Airbnb).
How many properties can I negatively gear?
There's no legal limit. You can negatively gear as many properties as you can afford and banks will lend you money for. However, each additional property increases your risk and cashflow requirements. Most investors cap at 3-5 negatively geared properties before switching to positive cashflow strategies.
What happens when my property becomes positively geared?
As rent increases over time and you pay down the loan, your property may become positively geared (income exceeds expenses). At that point, you'll pay tax on the rental profit instead of claiming a loss. Many investors refinance to buy another property and maintain the tax deductions.
Is negative gearing going to be banned?
Negative gearing reforms have been proposed by various political parties over the years, but it remains legal as of 2026. Any changes would likely be grandfathered (existing properties protected). However, policy risk is real — factor this into your investment decision.
Do I need an accountant for negative gearing?
Strongly recommended. An experienced property accountant will maximize your deductions (depreciation schedules, capital works, repairs vs improvements) and ensure ATO compliance. A good accountant pays for themselves by finding $5K-15K in extra deductions most DIY investors miss.
Can I claim interest on renovations or improvements?
Yes, but with conditions. Interest on loans for repairs & maintenance is deductible immediately. Interest on loans for renovations/improvements must be depreciated over the asset's effective life (often 40 years for structural work). Consult your accountant to structure this correctly.
What if I can't afford the ongoing losses anymore?
You have several options: (1) Sell the property (capital gains tax may apply), (2) Refinance to interest-only or extend the loan term to reduce monthly costs, (3) Increase rent if market allows, (4) Move into the property temporarily and rent out your main residence (swap the investment), or (5) Take in a tenant/boarder if the property allows. Always consult your accountant and mortgage broker before making changes.
How does negative gearing affect my borrowing capacity?
Banks treat rental income conservatively (usually 80% of actual income) but count 100% of expenses. This reduces your borrowing capacity significantly. For example, a property generating $30K rent but costing $40K means banks see $24K income and $40K expenses = -$16K cashflow impact. After 2-3 negatively geared properties, most investors hit their borrowing limit and must switch strategies.
Final Thoughts & Next Steps
Negative gearing can be a powerful wealth-building tool for high-income Australians — but only if property prices grow faster than your losses accumulate. It’s not a get-rich-quick scheme; it’s a leveraged bet on long-term capital appreciation.
Before diving in, run the numbers, stress-test for interest rate rises, and ensure you have the cashflow to sustain losses for 10+ years. Done right, negative gearing can accelerate your path to financial independence. Done wrong, it can set you back for years.
Ready to maximize your property tax deductions? Try our free Rental Property Calculator or sign up to track your expenses and receipts with ease.
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