Last updated: July 2026.
Negative Gearing in 2026: A Real Sydney Investment Property Example (With the Numbers)
Most explainers tell you negative gearing means your property costs more to hold than it earns, and the shortfall reduces your tax. True, but it leaves out the part that actually matters: what does that look like in real dollars on a real Sydney property? This post runs one illustrative example end to end, from purchase price and rent through to the after-tax weekly holding cost, so you can see exactly where the money goes.
Everything below is a worked illustration, not personal tax advice, and the figures are rounded for clarity. Your accountant confirms the numbers for your situation. If you want the plain-English basics first, start with our negative gearing explainer, then come back here for the maths.
Quick answer: Negative gearing is still allowed in Australia in 2026. On our illustrative $950,000 Sydney townhouse with an $850,000 interest-only loan, the property runs a rental loss of about $41,180 a year. For an investor on the 37% marginal tax bracket (39% with the Medicare levy), that loss cuts roughly $16,060 off their tax bill, leaving an after-tax holding cost near $17,120 a year, or about $329 a week. The strategy only makes sense if the property grows in value by more than that over time.
What negative gearing actually is, in one paragraph
Negative gearing is when the deductible costs of owning an investment property (loan interest plus running costs and depreciation) are higher than the rent it brings in. That net rental loss is deducted from your other taxable income, such as your salary, which lowers the tax you pay. You are still out of pocket on the property each year. The tax refund just softens the blow while you wait for capital growth to do the heavy lifting. For the full background on how the deduction works and its history, our negative gearing explainer is the place to start. This post assumes you already have the concept and want to see it in numbers.
The setup: our illustrative Sydney property
Here is the hypothetical property we are running the numbers on. These figures are illustrative and chosen to reflect a realistic 2026 Sydney purchase, not a specific listing.
- Property: a near-new three-bedroom townhouse in a middle-ring Sydney suburb
- Purchase price: $950,000
- Deposit and costs: funded partly from cash and partly from equity in an existing home
- Loan: $850,000, interest-only, at an illustrative 6.5% rate
- Rent: $650 a week, which is $33,800 a year (a gross yield of about 3.6%)
- Investor's income: salary that sits in the 37% marginal tax bracket, so with the 2% Medicare levy every extra dollar of deduction is worth 39 cents back
We have made it interest-only because that is how most Sydney investors structure a growth-focused purchase. It keeps the deductible interest high and the cash outflow lower while you hold. More on interest-only versus principal and interest further down.
If you are wondering how a loan like this gets funded from equity rather than a fresh cash deposit, our guide on how to use home equity to buy an investment property walks through the mechanics.
The numbers: what the property costs to hold
Start with the property in isolation, before any tax comes into it. Add up the rent, subtract every deductible cost, and you get the rental loss.
| Line item | Per year |
|---|---|
| Rental income ($650/week) | +$33,800 |
| Loan interest ($850,000 at 6.5%, interest-only) | -$55,250 |
| Council rates | -$1,800 |
| Strata levies | -$4,500 |
| Water rates | -$1,000 |
| Property management (6.6% of rent) | -$2,230 |
| Landlord insurance | -$700 |
| Repairs and maintenance | -$1,500 |
| Depreciation (non-cash) | -$8,000 |
| Net rental loss | -$41,180 |
Two things are worth pulling out of that table.
First, loan interest is the whole game. At $55,250 it dwarfs every other cost combined. This is why negative gearing gets more expensive the moment interest rates rise, and why the loan structure you choose matters more than shaving a few dollars off insurance. To model how a rate change moves your repayment, run your own figures through our loan repayment calculator.
Second, depreciation is a non-cash deduction. That $8,000 reduces your taxable income but no money leaves your bank account for it. It is the paper value of the building and its fixtures wearing out over time. That distinction matters when we work out your real cash position next.
Turning the loss into a tax refund
The $41,180 loss does not all come out of your pocket, and it does not all come back as a refund. You need to separate the cash you actually spend from the tax you actually save.
Your real cash shortfall is the rent minus the cash costs, ignoring depreciation because no cash leaves your account for it. That is $33,800 in rent minus $66,980 in cash expenses (every line above except the $8,000 depreciation), which is a cash shortfall of about $33,180 a year before tax.
Your tax refund is calculated on the full rental loss, including depreciation, at your marginal rate. So $41,180 multiplied by 39% is about $16,060 back at tax time.
| Step | Amount |
|---|---|
| Cash shortfall before tax (rent minus cash costs) | -$33,180 |
| Tax refund on the $41,180 loss at 39% | +$16,060 |
| After-tax holding cost | -$17,120 |
So the true cost of holding this property is roughly $17,120 a year, or about $329 a week. That is what it costs you, after the tax benefit, to own a near-million-dollar asset and wait for it to grow. Whether that is a smart trade depends entirely on capital growth, which we get to shortly.
What changes the picture
The base case above is a snapshot. Three things move the numbers most, and it is worth seeing how far.
| Scenario | What happens | After-tax holding cost |
|---|---|---|
| Base case | 6.5% interest, $650/week rent | about $17,120/year |
| Interest rate rises to 7.5% | Interest jumps by about $8,500 | about $22,300/year |
| Rent rises to $720/week | Loss shrinks as income climbs | about $14,900/year |
| Switch to principal and interest | Same interest deduction, but you also repay principal | higher cash cost, but you build equity |
A few takeaways from that table.
Rate rises hurt fast. A single 1% increase pushes the after-tax cost up by more than $5,000 a year, because interest is the biggest deductible cost and only a fraction of the increase comes back as tax. This is the risk that catches leveraged investors when the RBA moves. Before you buy, stress-test the holding cost at a rate two or three percent above today's, not just today's rate.
Rent growth quietly does the work. Push the weekly rent from $650 to $720 and the after-tax cost drops by roughly $2,200 a year. Over a long hold, rising rents can turn a negatively geared property positive, at which point it puts cash in your pocket instead of taking it. That crossover point is the goal.
Interest-only versus principal and interest is not really about tax. Only the interest portion of a loan is deductible, never the principal. Interest-only maximises your deduction and minimises your cash outflow while you hold, which is why growth investors favour it. Principal and interest costs you more each month, but the extra goes to paying down your loan, so it is forced saving rather than a true cost. Your borrowing capacity across your whole portfolio often decides which one a lender will even offer. Our borrowing power calculator gives you a rough read on where you sit.
Negative gearing only works if the property grows
Here is the part that gets lost in the tax conversation. You are spending roughly $17,120 a year, after tax, to hold this property. Over five years that is about $85,600 out of pocket. For the strategy to make sense, the property has to grow in value by more than that, and ideally by a lot more, because capital growth is where the real return lives.
On a $950,000 property, even a modest 3% a year in capital growth adds around $29,000 of value in year one alone, well above the after-tax holding cost. That gap, growth outrunning the holding cost, is the entire investment case. Negative gearing is the tool that makes the holding cost bearable while you wait for growth. It is not the return itself.
There is also a smarter way to run the debt behind all of this. Debt recycling turns the non-deductible interest on your own home into deductible investment debt over time, which can make a strategy like this considerably more tax-efficient. It is more advanced than standard negative gearing and needs careful structuring, so read our full debt recycling guide before you go near it. Used well, it changes the after-tax maths meaningfully.
And if a $17,000-a-year holding cost on a property you cannot live in sounds steep, that is exactly why many Sydney buyers choose to rent where they want to live and invest where the numbers work. Our rentvesting guide covers that trade-off, and our broader property investment service helps you weigh it against buying to live in.
Want this run against a real property? Let's do the numbers together
The example above is illustrative. Your version has different rent, a different rate, a different loan structure and a different tax position, and the answer changes with all of them. That is exactly the calculation RyRo Loan Centre does with Sydney investors before they buy, so you walk in knowing the real after-tax holding cost rather than guessing.
We structure the finance so your investment purchase sets up the next one, work alongside your accountant on the tax side, and we charge no broker fees. Whether you are buying your first investment property or adding to a portfolio from our base in Norwest and across Sydney, book a free strategy call or get in touch and we will map the numbers to your situation. For the strategy foundations first, our property investment service and the negative gearing explainer are the right starting points.
Quick answers
Frequently asked questions
Yes. Negative gearing remains available to property investors in Australia in 2026. The 2026-27 Federal Budget did not change the rules that let you deduct a net rental loss against your other taxable income, and the capital gains tax discount also stayed in place. Reform has been debated for years, but as things stand the strategy works the same way it has. Because tax policy can change, and because your own eligibility depends on your circumstances, confirm the current position with your accountant before you rely on it for a purchase decision.
You save your marginal tax rate multiplied by the rental loss, not the whole loss. In our example, a $41,180 loss for someone on the 37% bracket (39% with the Medicare levy) returns about $16,060. Someone on a lower marginal rate gets less back from the same loss, which is why negative gearing is more valuable the higher your income. Crucially, you still spend more than you get back. The refund reduces your holding cost, it does not eliminate it or turn a loss into a profit.
About $17,120 a year, or roughly $329 a week. That figure is the cash you actually spend on the property (rent minus real cash expenses, which comes to about $33,180) minus the tax refund of about $16,060. The refund is larger than a simple cash calculation because it includes the $8,000 depreciation deduction, which lowers your taxable income without costing you cash. Different rent, rate or income assumptions move this number, so treat it as illustrative.
No. Depreciation is a non-cash deduction. It represents the building and its fixtures losing value over time, and you claim it without any money leaving your account. That is why it boosts your tax refund but does not add to your out-of-pocket cash cost. The catch is that since 2017 you generally cannot claim depreciation on second-hand plant and equipment in an established property, so it is most valuable on new or near-new builds. A quantity surveyor prepares a depreciation schedule that tells you the exact claimable amount.
For the tax deduction itself it makes no difference, because only the interest portion is ever deductible, never the principal. Interest-only keeps your cash outflow lower and your deductible interest higher while you hold, which is why growth-focused investors often prefer it. Principal and interest costs more each month, but the extra pays down your loan, so it is building equity rather than being lost. Which one you can get often comes down to your overall borrowing position across your portfolio, something a broker can map out with you.
Your holding cost goes up, and only part of the increase comes back as tax. In our example, a 1% rate rise adds about $8,500 to annual interest but only lifts the refund by around $3,300, so your after-tax cost climbs by more than $5,000 a year. Because loan interest is by far the biggest deductible cost, rate movements have the largest single impact on a negatively geared property. Always stress-test your holding cost at a rate well above today's before committing.
Yes, and that is usually the goal. As rents rise over time and your interest costs stay flat or fall, the rental income can eventually exceed the deductible costs. At that point the property is positively geared and puts cash in your pocket, though that income is then taxable. Paying down the loan with principal and interest repayments also speeds up the crossover. A property that is negatively geared today is not stuck that way forever.
No. This is the most expensive mistake in the whole strategy. The tax refund only ever returns a fraction of what you spend, so a property that does not grow in value simply loses you money more slowly. Choose the property for its growth prospects and rental demand first, then let negative gearing make the holding cost manageable while you wait. If a deal only stacks up because of the tax deduction, it is not a good deal. A free strategy call is the fastest way to pressure-test whether a specific purchase makes sense.
Not high, but higher income does make it more effective, because the refund is worth your marginal tax rate. On the 37% or 45% brackets you get more back from the same loss than someone on 30%. If your income is above $250,000, be aware the Division 293 rules add an extra tax on your concessional super contributions, which is a separate issue but part of the same high-income picture. Your accountant can tell you what a rental loss is worth against your specific tax position.
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