What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property — mortgage interest, council rates, property management fees, insurance, repairs, and depreciation — exceed the rental income it generates. The resulting loss can be deducted against your other taxable income, which typically means your salary.
In practical terms: if your rental property produces $24,000 in rent but costs you $32,000 a year to hold, you have an $8,000 loss. That loss reduces your taxable income by $8,000. If you're on the 37% marginal tax rate, the ATO effectively subsidises $2,960 of that shortfall. You still paid $5,040 out of pocket — but you're betting the property's capital growth will more than compensate over time.
Use our negative gearing calculator to model your exact numbers before committing to any property purchase.
How the Tax Deduction Actually Works
The deduction isn't a refund — it's a reduction in assessable income. You claim the net rental loss on your tax return, which flows through to a lower tax bill or a larger refund at year end. The bigger your marginal rate, the more the government effectively chips in.
Key deductible expenses include:
- Loan interest (the largest item for most investors)
- Property management and letting fees
- Council rates and water charges
- Insurance premiums
- Repairs and maintenance (not improvements — those are capital)
- Depreciation on the building and fittings (claim via a quantity surveyor report)
- Accounting fees related to the investment
Depreciation is often the item investors miss. A professional depreciation schedule from a quantity surveyor can unlock thousands of dollars in non-cash deductions that push an otherwise neutral property into negative gearing territory.
The Capital Growth Bet
Negative gearing only makes mathematical sense if the property appreciates enough to offset cumulative cash losses. This is the central tension every investor needs to work through honestly.
If you're losing $5,000 a year in after-tax cash and hold for 10 years, that's $50,000 in real money out of your pocket. For the strategy to break even on cash flow alone, your property needs to grow by at least that much — and realistically much more, because you also need to cover selling costs (agent fees, legal costs) and capital gains tax on the profit.
Run the numbers with our rental yield calculator to understand what return the property is actually generating, and our capital gains tax calculator to estimate what you'll owe when you eventually sell.
Positive vs Neutral vs Negative Gearing
Not all investment properties are negatively geared. A positively geared property earns more in rent than it costs to hold — you pocket the difference, but pay tax on it. A neutrally geared property roughly breaks even. Which is best depends on your income, tax position, cash flow needs, and the specific property market you're targeting.
High-income earners get proportionally more benefit from negative gearing because their marginal rate is higher. Someone on 47% effectively gets nearly half their loss subsidised. Someone on 19% gets far less — and may be better served by a positively geared property that generates income without cash flow pressure.
Is Negative Gearing Still Worth It in 2026?
The strategy continues to attract debate. Property prices in most capital cities remain high relative to rents, meaning many new purchases are deeply negative from day one. Higher interest rates since 2022 have pushed holding costs up significantly, widening losses for investors who bought at peak prices with large mortgages.
The case for negative gearing rests on four things going right simultaneously: sustained capital growth, your ability to fund ongoing losses, your continued high-income status, and no adverse tax policy changes. That's a meaningful number of variables to align over a decade or more.
If you're seriously considering a negatively geared property, get advice from a tax accountant and a buyer's agent before committing. A good finance book can also sharpen your thinking — browse property investment titles on Amazon AU to build your knowledge base before the numbers on paper become a real mortgage.
The Bottom Line
Negative gearing is a legitimate tax strategy — not a rort, not a guaranteed path to wealth. It rewards patient investors in rising markets who can absorb ongoing cash losses and have the tax rate to make the deduction meaningful. It punishes investors in flat markets who underestimate holding costs or overestimate growth.
Model every scenario before you buy. The calculator is free. The mortgage isn't.