How negative gearing works
A rental property is negatively geared when the yearly cost of owning it is more than the rent it brings in. The gap is a rental loss. In Australia that loss is not stranded against the property. It comes off your other assessable income, such as your salary, which lowers the tax you pay. The deductible costs include loan interest, council rates, insurance, repairs and maintenance, strata, property management and agent fees, plus depreciation on the building and fittings. The saving is the loss multiplied by your marginal tax rate, and because Australia’s rates are tiered, a higher income means a bigger saving on the same loss.
The real cost of holding a negatively geared property
The tax saving never covers the whole shortfall. Say a property loses $13,000 for the year. At a 37% marginal rate the saving is about $4,810, so you are still out of pocket for the rest. Negative gearing gives you a partial refund, not a full reimbursement. That is why the headline figure above is the real after-tax cost, the cash you actually fund each week once the tax saving is counted. The strategy only comes out ahead if the property grows in value by more than that holding cost over time, which is the bet an investor is making.
Why depreciation matters
Depreciation is a non-cash deduction. It lowers your taxable rental loss, which lifts your tax saving, but it is not money leaving your account, so it does not add to your weekly shortfall. That split is where a property can be negatively geared on paper while close to neutral in cash terms. Itemise mode keeps depreciation separate from your cash costs so the tool can show both the taxable loss and the real cash you fund. If you do not have a depreciation schedule from a quantity surveyor, leave it at zero.
Is negative gearing changing in Australia?
Negative gearing is part of the 2026 tax reform, and this is the piece people are most confused about, so here is the factual position. Negative gearing has not been abolished. The changes commence on 1 July 2027, with grandfathering tied to an acquisition cutoff of 7:30pm on 12 May 2026: property held before that moment keeps the existing negative-gearing treatment. Early indications are that negative gearing will be kept for new buildsand wound back on established dwellings bought after the cutoff, though the detail for later purchases is still to be set by legislative instrument, so confirm the final position with the ATO before you act. This calculator applies the current law: it deducts the full rental loss against your income at your marginal rate.
One point is worth clearing up, because the two dates get mixed up. The 12 May 2026 time is an acquisition cutoff for grandfathering, not a start date. Both the negative-gearing changes and the separate capital gains tax change commence on 1 July 2027. The difference is the cutoff: the negative-gearing changes carry the 12 May 2026 acquisition line, while the CGT change, which swaps the 50% discount for cost-base indexation plus a 30% minimum tax, has no acquisition cutoff. If you are weighing up a future sale, model it with the capital gains tax calculator, which handles the 2027 changes and the deemed 1 July 2027 rebasing.
Negative vs positive gearing
A property is positively geared when the rent is higher than the costs, so it turns a profit. That profit is added to your income and taxed, which is the opposite of a tax saving. Positive gearing puts cash in your pocket each year and gives you a tax bill; negative gearing costs you cash each year and gives you a tax deduction. Neither is automatically better. It depends on your income, your cash flow, and what you expect the property to do in value. If your inputs show a profit, the calculator above switches to show the net rental income instead of a loss.
Frequently asked questions
How do I calculate negative gearing?
Add up the yearly costs of the investment property: loan interest, council rates, insurance, maintenance, strata, property management, and any depreciation. Take off the rent you receive. If the costs are higher, the difference is your rental loss. That loss comes off your other taxable income, so your tax saving is the loss multiplied by your marginal tax rate plus the 2% Medicare levy. On a $13,000 loss at a 37% marginal rate the saving is about $4,810. This tool does the full sum, including stacking the loss against your real income to find the right rate.
How much money does negative gearing save?
Only a slice of the loss, never all of it. The saving equals your rental loss times your marginal tax rate. At a 32% rate a $10,000 loss saves $3,200; at 47% it saves $4,700. That means you still fund the rest of the shortfall out of your own pocket. Negative gearing is a partial tax refund, not a full reimbursement, so the strategy only pays off if the property grows in value enough to beat the after-tax holding cost.
Is negative gearing actually worth it?
It depends on your marginal rate and on capital growth. A higher income means a bigger tax saving on the loss, but you are still out of pocket each year, so you are relying on the property rising in value to come out ahead. If it does not grow, the tax saving alone rarely covers the holding cost. Run your own numbers above, then compare a future sale with the capital gains tax calculator. This is general information, not advice.
Who benefits most from negative gearing?
People on higher marginal tax rates, because the loss is deducted at that rate. A dollar of rental loss is worth 47 cents to someone in the top bracket and 17 cents to someone in the lowest. That is why negative gearing skews toward higher earners. The benefit also depends on borrowing enough that interest and other costs run ahead of the rent, which is what creates the loss in the first place.
Is negative gearing being scrapped in Australia?
Not abolished. Under the 2026 tax reform, the negative-gearing changes commence on 1 July 2027, with grandfathering tied to an acquisition cutoff of 7:30pm on 12 May 2026. Property held before that time keeps the current rules. Early signals point to new builds keeping negative gearing while established dwellings bought after the cutoff are wound back, but the detail for later purchases is still to be set by legislative instrument, so check the ATO for the final position before acting.
What is the 12 May 2026 negative gearing cutoff?
7:30pm on 12 May 2026 is the acquisition cutoff for grandfathering the negative-gearing changes under the 2026 reform. Property you owned before that moment keeps the existing negative-gearing treatment. The changes themselves commence on 1 July 2027. The separate CGT change (cost-base indexation and a 30% minimum tax) also commences 1 July 2027, but with no acquisition cutoff. So the two reforms share a commencement date and differ on the cutoff. See the capital gains tax calculator for the CGT side.
Can you negatively gear a property owned with someone else?
Yes. Where a property is owned jointly, the rent, expenses and any rental loss are split by each owner's legal ownership share, usually 50/50 for a couple. Each owner then claims their share of the loss against their own income at their own marginal rate. That is why splitting an investment toward the higher earner can lift the total tax saving. To model a couple, run each person's share separately in this calculator.
Does negative gearing only apply to property?
No. Negative gearing works for any income-producing investment bought with borrowed money, including shares and managed funds, where the interest and costs exceed the income. Property is the most common example because loans are large and rent often falls short of interest. The tax principle is the same: the net loss is deducted against your other assessable income. This calculator is set up for rental property.
What is the difference between negative and positive gearing?
A property is negatively geared when its costs are higher than its rent, so it runs at a loss that reduces your tax. It is positively geared when the rent is higher than the costs, so it makes a profit that is added to your income and taxed. Positive gearing puts cash in your pocket each year but gives you a tax bill, not a saving. If your figures show a profit, this tool switches to show the net rental income instead of a loss.
This tool is a guide, not tax advice.
