Negative Gearing Explained: How It Works in Australia (2026)

Negative gearing is a tax strategy where the costs of owning an investment property (loan interest, maintenance, insurance, management fees) exceed the rental income it generates. The resulting loss can be offset against your other income, reducing your overall tax bill.

As of 2026, negative gearing remains one of the most commonly used tax strategies for Australian property investors. Whether it makes sense for you depends on your income, tax bracket, investment goals, and how long you plan to hold the property.

How Negative Gearing Works

The concept is straightforward: if your investment property costs more to own than it earns in rent, the difference is a tax-deductible loss.

Example:

• Rental income: $30,000/year
• Loan interest: $28,000/year
• Council rates: $2,500/year
• Insurance: $1,800/year
• Property management: $2,400/year
• Maintenance: $1,500/year
• Depreciation: $8,000/year
• Total expenses: $44,200/year
• Net loss: $14,200/year

This $14,200 loss is deducted from your taxable income. If you earn $120,000 in salary, your taxable income becomes $105,800.

Tax Savings by Income Bracket

Taxable Income	Marginal Rate	Tax Saving on $14,200 Loss
$45,001-$60,000	20.5%	$2,911
$60,001-$80,000	30%	$4,260
$80,001-$120,000	37%	$5,254
$120,001-$180,000	37%	$5,254
$180,001+	45%	$6,390

The higher your income, the more you save in tax from negative gearing.

What Expenses Can You Claim?

Immediately deductible:

• Loan interest payments
• Property management fees
• Insurance (landlord, building, contents)
• Council and water rates
• Body corporate fees
• Repairs and maintenance
• Advertising for tenants
• Legal expenses for leases
• Travel to inspect property (limited)

Capital works deductions (depreciation):

• Building structure: 2.5% per year (for properties built after 1987)
• Plant and equipment: varies by asset (carpet, blinds, appliances, air conditioning)
• Get a depreciation schedule from a quantity surveyor — typically costs $400-700 and saves thousands

Negative Gearing Calculator: Worked Example

Let's calculate the true cost of holding a negatively geared investment property.

Property: $700,000 apartment in Sydney Loan: $560,000 (80% LVR) at 6.2% interest Rental yield: 3.8% Your salary: $110,000

Annual income:

• Rent: $700,000 × 3.8% = $26,600

Annual expenses:

• Loan interest: $560,000 × 6.2% = $34,720
• Council rates: $1,800
• Water rates: $700
• Insurance: $1,500
• Strata: $4,200
• Property management (7%): $1,862
• Maintenance allowance: $1,000
• Depreciation: $7,000
• Total: $52,782

Net loss: $26,600 - $52,782 = -$26,182

Tax saving: $26,182 × 37% = $9,687

True after-tax cost of holding:

• Cash loss (excluding depreciation): $19,182
• Tax refund: $9,687
• Net cash cost: $9,495/year or $791/month

So you're paying $791/month out of pocket to hold a $700,000 property that (historically) appreciates 5-7% per year. If the property grows 5%, that's $35,000 in capital gain in year one alone.

When Negative Gearing Makes Sense

Good candidates:

• High income earners (37%+ tax bracket) — bigger tax saving
• Long-term investors (5+ year hold) — capital growth covers the holding cost
• Properties with strong depreciation (newer builds) — maximises deductions
• Growth areas where rents will eventually exceed costs (turning positively geared)

Poor candidates:

• Low income earners — the tax saving is small
• Short-term investors — transaction costs eat into gains
• Properties with no growth potential — you're just losing money
• People who can't afford the monthly cash shortfall

Negative Gearing vs Positive Gearing

Factor	Negative Gearing	Positive Gearing
Cash flow	Monthly cost to you	Monthly income to you
Tax impact	Reduces your taxable income	Increases your taxable income
Typical property	Growth-focused (lower yield, higher price)	Yield-focused (higher yield, lower price)
Best for	High income earners, long-term growth	Retirees, lower income, cash flow
Risk	Need to fund shortfall, dependent on growth	Less risk, immediate returns

Common Mistakes with Negative Gearing

1. Buying a bad property because of tax benefits — a $10K tax saving doesn't help if the property drops $50K in value
2. Not getting a depreciation schedule — many investors miss thousands in deductions
3. Ignoring cash flow risk — can you afford the monthly shortfall if rates rise or the property is vacant?
4. Forgetting CGT — when you sell, capital gains tax applies (50% discount if held 12+ months)
5. Over-leveraging — negative gearing multiple properties compounds risk

Negative Gearing and Your Borrowing Power

Lenders assess your borrowing capacity differently when you have investment properties. They'll add rental income (usually 80% of gross rent) but also add the loan repayments and property expenses. Net effect varies by lender.

Use our borrowing power calculator to see how investment property ownership affects your capacity.

Getting Investment Loan Advice

Negative gearing is a legitimate and widely-used strategy, but it's not right for everyone. The key is matching your investment property strategy to your financial goals, income, and risk tolerance.

At RyRo Loan Centre, we help Sydney investors structure investment loans to maximise tax efficiency while managing risk. Book a free strategy call to discuss your investment property plans.

FAQs

Is negative gearing still allowed in Australia in 2026?

Yes. Negative gearing remains fully available for Australian property investors as of 2026.

How much can I save with negative gearing?

Depends on your loss and tax bracket. A $20,000 annual loss at 37% marginal rate saves $7,400 in tax.

Do I need a quantity surveyor for depreciation?

Strongly recommended. A depreciation schedule costs $400-700 but typically identifies $5,000-15,000+ in first-year deductions.

Can I negative gear a new build?

Yes, and new builds typically have higher depreciation deductions, making them more tax-effective for negative gearing.

What happens when my property becomes positively geared?

You pay tax on the net rental income instead of claiming a deduction. This is normal as rents increase over time.

Does negative gearing affect my home loan application?

It can. Lenders account for investment property income and expenses when assessing borrowing power. Results vary by lender.

Can I negative gear a holiday home?

Only if it's genuinely available for rent and you can demonstrate arms-length rental activity. The ATO scrutinises holiday home claims closely.

Is negative gearing worth it on a low income?

Generally less effective below $60,000 income because the tax saving is smaller. Focus on positively geared or neutral properties instead.

Last updated: April 2026