Weekly: $550.00
Rates, insurance, repairs, management
Rental Loss
$19,400.00
Tax Benefit
$6,208.00
After-Tax Cost
$13,192.00
What is Negative Gearing?
Negative gearing occurs when the costs of owning a rental property (interest, expenses, depreciation) exceed the rental income. The resulting loss can be offset against your other income (such as salary), reducing your taxable income and tax payable.
Tax Benefit
The tax benefit equals your rental loss multiplied by your marginal tax rate. Higher income earners receive a larger tax benefit because they have a higher marginal rate. The after-tax cost is the rental loss minus the tax benefit.
Depreciation
Depreciation is a non-cash deduction that can significantly increase your tax benefit. It includes building allowance (2.5% per year for post-1987 buildings) and plant and equipment deductions. A quantity surveyor's report is needed to claim depreciation.
ATO-Aligned: Uses 2025-26 tax rates. The tax benefit alone does not make negative gearing profitable -- the investment strategy relies on capital growth exceeding the after-tax holding costs over time.
How claiming a loss on an investment property reduces your taxable income
What is negative gearing?
Negative gearing happens when the costs of owning an investment property exceed the rental income it generates. For example, if your rental income is A$25,000 per year but your expenses (mortgage interest, rates, insurance, maintenance, depreciation) total A$35,000, you have a net rental loss of A$10,000. You can deduct this loss from your other income, such as salary, reducing your overall tax bill.
How does negative gearing save you tax?
The rental loss reduces your taxable income. If you earn A$100,000 in salary and have a A$10,000 rental loss, you only pay tax on A$90,000. At a 37% marginal tax rate, that saves you A$3,700 in tax. The higher your tax bracket, the more you save. Someone on the top 45% rate would save A$4,500 from the same A$10,000 loss. The tax saving does not cover the entire loss, so you are still out of pocket.
What expenses can you claim on a rental property?
Deductible expenses include mortgage interest (not principal repayments), council rates, water rates, insurance, property management fees, repairs and maintenance, pest control, cleaning, advertising for tenants, and depreciation on the building and fittings. On a typical investment property, interest is the largest expense. You can also claim travel to inspect the property (limited since 2017) and some legal costs.
What is depreciation and why does it matter?
Depreciation lets you claim a deduction for the wear and tear on your property's building structure and fittings (like carpets, appliances, and blinds). The building itself can be depreciated at 2.5% per year for properties built after 1985. A property that cost A$400,000 to build could give you a A$10,000 depreciation deduction each year. You need a quantity surveyor's report (costing about A$600 to A$800) to maximise depreciation claims.
What is positive gearing?
Positive gearing is the opposite — when your rental income exceeds your expenses. If your rent is A$30,000 and expenses are A$22,000, you have a net profit of A$8,000 that gets added to your taxable income. Many investors start negatively geared and become positively geared over time as rents increase while mortgage interest decreases. Positive gearing means more income tax but also more cash in your pocket.
Is negative gearing worth it?
Negative gearing only makes financial sense if the property increases in value over time (capital growth). The tax saving reduces your out-of-pocket cost, but you are still spending more than you earn from rent. If a property does not grow in value, you lose money. Many investors accept short-term losses for long-term capital growth. Always run the numbers — a A$10,000 rental loss saves A$3,700 in tax but still costs you A$6,300 per year.
Can you negatively gear shares or other investments?
Yes. Negative gearing is not limited to property. If you borrow to buy shares and the interest on the loan exceeds your dividend income, the loss can be deducted from your other income. For example, if you pay A$5,000 in interest on a share portfolio that earns A$3,000 in dividends, you have a A$2,000 deductible loss. The same principle applies to managed funds and other income-producing investments.
What records do you need for negative gearing?
Keep records of all rental income and every expense. You need loan statements showing interest paid, receipts for repairs and maintenance, rate notices, insurance certificates, agent statements, and your depreciation schedule. The ATO closely scrutinises rental property claims — it is one of their top audit areas. Common errors include claiming the property is available for rent when it is used personally and overclaiming expenses.
ATO-Aligned: Based on 2024-25 ATO rates and thresholds. For personal advice, speak to a qualified tax agent.
Disclaimer: This calculator provides estimates based on current ATO rates and thresholds for the 2024–25 financial year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified tax agent before making financial decisions. Read our terms
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