Negative Gearing
Calculator AU 2026
Work out what the property costs you after tax each year, and what it has to grow by to be worth it. Negative gearing is not a tax saving on its own — it is a real cash loss, partly refunded, betting on capital growth. Includes ATO 2026-27 marginal rates, the 2% Medicare levy, depreciation and the 50% CGT discount on sale.
Read the full answer — method, rates and figures
Quick answer: Australian negative gearing converts a property operating loss into an after-tax wealth strategy. Mechanics: rental income − (interest + property management + council rates + strata + insurance + repairs + depreciation) = net loss; loss reduces taxable income at marginal rate (15/30/37/45% + 2% Medicare for FY 2026-27; the $18,201–$45,000 band was cut from 16% to 15% on 1 July 2026, and FY2025-26 returns lodged now use 16%).
Tax saving = loss × marginal rate. Strategy works only if capital growth + tax savings exceed cumulative cash losses + holding costs. 50% CGT discount applies on assets held >12 months as individuals/trusts (33.33% SMSF, 0% companies/non-residents).
Recent rule changes: travel deductions removed for residential property post-1 July 2017; second-hand Division 40 plant equipment depreciation removed for residential acquisitions post-9 May 2017. Building depreciation (Division 43): 2.5%/year over 40 years, only for buildings constructed after 16 September 1987.
Plant equipment depreciation (Division 40): effective life under TR 2024/3. ATO data: 1.1M Australians claimed rental loss in 2021-22, average $5,500.
Source: ato.gov.au/individuals-and-families/investments-and-assets/residential-rental-properties.
Interest-only assumed (typical for investment loans 5y term).
FY 2026-27 average IO investor rate ~6.5-7.5%. Owner-occupier P&I typically 0.20-0.50pp lower.
Gross yield: 3.6%. Sydney/Melbourne typical 2.5-3.5%; regional 5-7%.
Get a quantity surveyor's schedule (~$700, deductible). New builds: $8-15k/year typical.
Marginal rate: 32.0% (incl. Medicare). Higher bracket = larger tax shield from the loss.
Australian capital city long-term average ~5-7% nominal. Highly cyclical and suburb-dependent. Use conservatively for stress testing.
CPI rent inflation typically 2-4%. Reduces negative-gearing benefit over time as cash position improves.
Year 1 Net Loss
$31,122
negatively geared
Y1 Tax Saving
$9,959
at 32.0% marginal
Y1 After-Tax Cash Flow
-$13,163
cash out after tax saving
Year 10 Equity (after CGT)
$517,211
on hypothetical Y10 sale
10-year wealth scenario
- • Starting equity (deposit): $160,000
- • 10-year cumulative after-tax cash flow: -$105,153 (cash out)
- • Total tax saved over 10 years: $87,131
- • Property value after 10 years at 5.0%/yr: $1,303,116 (gain $503,116)
- • Net capital gain after costs + cost-base adjustments: $510,538
- • 50% CGT discount applied → discounted gain $255,269, CGT payable $113,326
- • Year 10 net equity (after loan + sale costs + CGT): $517,211
This projection applies the 50% CGT discount across all ten years, which is the law currently in force. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, from 1 July 2027 the 50% discount is replaced by cost-base indexation plus a 30% minimum tax rate on net capital gains accruing after that date — so for an established dwelling acquired after 7:30pm AEST on 12 May 2026, the Year 10 figure above is likely optimistic. Purchases settled before that cut-off are grandfathered, and new residential dwellings can elect to keep the 50% discount. See the 2026 negative gearing reform guide for which side of the cut-off you are on.
⚠ Stress test sensitivity: capital growth assumption is the dominant driver. At 0% growth over 10 years, most negatively-geared properties produce net negative return after holding costs. Australian capital city growth has historically averaged 5-7% nominal but with significant cyclical variation (-15% to +25% in any single year).
| Year | Rent | Loss/(Profit) | Tax Saving | After-Tax CF | Equity |
|---|---|---|---|---|---|
| 1 | $28,600 | $31,122 | $9,959 | -$13,163 | $200,000 |
| 2 | $29,458 | $30,324 | $9,704 | -$12,620 | $242,000 |
| 3 | $30,342 | $29,502 | $9,441 | -$12,061 | $286,100 |
| 4 | $31,252 | $28,656 | $9,170 | -$11,486 | $332,405 |
| 5 | $32,190 | $27,784 | $8,891 | -$10,893 | $381,025 |
| 6 | $33,155 | $26,886 | $8,603 | -$10,282 | $432,077 |
| 7 | $34,150 | $25,961 | $8,307 | -$9,653 | $485,680 |
| 8 | $35,174 | $25,008 | $8,003 | -$9,005 | $541,964 |
| 9 | $36,230 | $24,026 | $7,688 | -$8,338 | $601,063 |
| 10 | $37,317 | $23,016 | $7,365 | -$7,651 | $663,116 |
New to negative gearing? The Australian negative-gearing guide walks through how it works, deductible expenses, the 50% CGT discount, and when to avoid it — with worked examples at every tax bracket.
Last reviewed 19 September 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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Track my property — FreeHow it works
Negative gearing converts a property's pre-tax operating loss into an after-tax wealth-building strategy via three components:
- Operating loss — annual rental income minus annual expenses (interest + management + rates + insurance + depreciation). When negative, this loss flows to your tax return.
- Tax shield — the loss reduces your taxable income at your marginal rate (15/30/37/45% + 2% Medicare). Higher brackets get larger absolute tax savings per dollar of loss.
- Capital growth — long-term price appreciation provides the wealth-building return. With 50% CGT discount on assets held >12 months, only half the gain is taxed at sale.
Strategy viability depends on capital growth being sufficient to offset cumulative cash losses + holding costs. Recent regulatory changes: travel deductions removed for residential property post-1 July 2017; second-hand Division 40 plant equipment depreciation removed for residential property acquisitions post-9 May 2017. Source: ato.gov.au/individuals-and-families/investments-and-assets/residential-rental-properties. Updated 28 July 2026 for FY2026-27 (low marginal band 15%).
How to calculate negative gearing
It is one subtraction, then one multiplication.
Step 1 — find the loss. Rental income minus interest, running costs and depreciation. If the answer is negative, the property is negatively geared.
Step 2 — find the tax saving. Multiply that loss by your marginal tax rate. The loss lowers your taxable income, so the saving is tax you no longer pay — never a refund of the whole loss.
| $750,000 unit · $600,000 loan at 6.5% | Per year |
|---|---|
| Rent at $550/week | $28,600 |
| Interest | −$39,000 |
| Running costs | −$10,000 |
| Depreciation (non-cash) | −$6,000 |
| Net rental loss | −$26,400 |
| Tax saving at 37% + 2% levy | $10,296 |
| Actual cash shortfall | −$20,400 |
| Real cost after tax | ≈ $10,104 |
Two different numbers, and the gap matters. You deduct $26,400. Only $20,400 actually leaves your account, because depreciation is a paper cost. That is what makes depreciation worth claiming.
Negative gearing tax saving by bracket (FY2026-27)
What a $20,000 rental loss is worth at each bracket. The $18,201–$45,000 band was cut from 16% to 15% on 1 July 2026; FY2025-26 returns lodged now still use 16%.
| Taxable income | Rate | + levy | Saving |
|---|---|---|---|
| $18,201 – $45,000 | 15% | 17%* | $3,400 |
| $45,001 – $135,000 | 30% | 32% | $6,400 |
| $135,001 – $190,000 | 37% | 39% | $7,800 |
| $190,001 and over | 45% | 47% | $9,400 |
The same loss is worth nearly three times as much at the top bracket as at the bottom. That is also why negative gearing is a weak reason, on its own, to hold a loss-making property on a low income.
*The Medicare levy phases in above $28,011, and the low income tax offset changes the saving on incomes up to $66,667 (it wipes out income tax entirely up to $22,867), so the lowest band often saves less than 17%. Rates: ATO, Tax rates – Australian resident, page last updated 13 August 2026. Published rates exclude the levy.
What you can claim: expenses and depreciation
Deductible in the year you pay them:
- Mortgage interest
- Property management fees
- Council and water rates
- Landlord insurance
- Repairs and maintenance
- Strata or body corporate fees
- Advertising for tenants, and the rental schedule accounting fee
Deductible over time, as depreciation:
- Division 43 — the building. 2.5% a year for 40 years, on the original construction cost rather than what you paid. A $400,000 build is $10,000 a year.
- Division 40 — plant and equipment. Air conditioning, carpet, blinds, appliances, written off over their effective life.
Two traps that catch investors:
- Since 9 May 2017, no Division 40 deduction on second-hand plant in a residential rental. Buy an established property and the existing oven and carpet are worth nothing to you — only items you install yourself.
- Since 1 July 2017, travel to inspect a residential rental is not deductible at all.
Not deductible against income: capital improvements such as a new kitchen, and stamp duty. Both are cost-base items — they reduce your capital gain on sale instead, which is usually a smaller benefit.
Negative vs positive gearing: which is better?
Gearing describes cash-flow direction, not whether an investment is any good.
A negatively geared property loses money each year and needs capital growth to come out ahead. A positively geared one pays you income now, and that profit is added to your taxable income.
| Negative | Positive | |
|---|---|---|
| Cash flow | You top it up | It pays you |
| Tax effect | Cuts taxable income | Adds to it |
| Relies on | Capital growth | Rental yield |
| Typical of | Inner Sydney, Melbourne | Regional, mining towns |
| Suits | Higher brackets | Lower brackets, retirees |
A quick test: set capital growth to 0% in the calculator above. If the ten-year result still looks acceptable, the property stands on its own. If it collapses, you are relying entirely on a forecast.
What negative gearing is actually betting on
The refund is the part everyone talks about and the smaller half of the arithmetic. A negatively geared property loses money every year in cash: rent comes in, interest and expenses go out, and the gap is real money leaving your account. Your marginal rate refunds a share of that gap — at 37% plus the 2% Medicare levy you get back 39 cents in the dollar, which means you are still out of pocket 61 cents. Negative gearing never turns a loss into a gain by itself. It reduces the cost of holding an asset, and the whole case for holding it is that the asset grows by more than the after-tax losses you funded along the way.
That makes capital growth the load-bearing assumption rather than a bonus — which is why the quarter just reported is worth knowing. The ABS found the total value of Australian residential dwellings fell $34.1 billion, or 0.3%, to $12.7 trillion in the June 2026 quarter, the first fall since the September quarter 2022, with the mean dwelling price down 0.7% to $1,100,400. Mean prices fell in New South Wales (−2.4%), Victoria (−2.1%) and the ACT (−1.3%) and rose in every other state and territory. Over the year the stock is still 8.5% above June 2025, so this is one soft quarter and not a trend — but it is a concrete reminder that the growth leg is an assumption you are funding, not a return you are receiving. One flat year does not undo the strategy; several would.
Two things follow for anyone already holding a geared property. Judge it on total return — the after-tax cash loss, plus growth, minus the CGT eventually payable on sale after the 50% discount — and never on the refund alone; the projection above does that, a tax saving quoted by itself does not. And read it inside your whole position rather than as a standalone line, because a geared property is at once an asset, a large liability and a claim on your monthly cash flow, and only the combined view answers whether it is making you wealthier. Work out the equity you actually hold and check it against the average Australian net worth for your age.
Source: ABS, Total Value of Dwellings, June quarter 2026, released 8 September 2026. General information only, not financial or tax advice, and it does not consider your circumstances.
Does the 2026 reform affect your property?
It depends on when you acquired it. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commences 1 July 2027.
- Acquired after 7:30pm AEST, 12 May 2026, and established? From 1 July 2027 its losses can only offset other residential property income — not salary. Unused losses carry forward.
- Acquired before that? Grandfathered. Full salary offsetting continues.
- A new build? Keeps full negative gearing either way.
Nothing changes for the 2026-27 income year, so the figures above are the rules currently in force.
Buying an established property now puts you on the post-cut-off side — model it on rental income alone, not on the tax refund. For the cut-off detail, the grandfathering test and the separate change to the 50% CGT discount, see our 2026 negative gearing reform guide.
How to use this calculator
- Enter property purchase price, loan amount (typically 80-90% LVR for investment), and interest rate (FY 2026-27 average IO investor rate ~6.5-7.5%).
- Enter weekly rental income — annualised at × 52. Include any income from on-site parking, storage, etc.
- Enter annual operating expenses: property management (5-10% of rent), council rates, strata, insurance, repairs, plus depreciation (use a quantity surveyor's schedule for accuracy).
- Enter your taxable income before the property loss. The calculator applies ATO 2026-27 marginal rates (15/30/37/45%) plus 2% Medicare levy to determine tax saving.
- Set your assumed annual capital growth rate. Australian capital city long-term average ~5-7% nominal, but varies significantly by suburb and cycle. Adjust for conservatism.
- Review the 10-year projection: net annual cash flow (after tax saving), cumulative loss, capital appreciation, and after-tax IRR estimate including the 50% CGT discount on sale.
❓ Frequently Asked Questions
What is negative gearing in Australia?
Negative gearing occurs when the costs of holding an investment property (interest on loan + repairs + property management + council rates + insurance + depreciation) exceed the rental income. The loss reduces your overall taxable income, lowering your income tax bill at your marginal rate.
The strategy works only if expected long-term capital growth + tax savings exceed cumulative cash losses. ATO statistics: ~1.1 million Australians (about 8% of taxpayers) reported a net rental loss in 2021-22, with average loss ~$5,500.
Negative gearing is permitted under sections 8-1 and 25-25 of the Income Tax Assessment Act 1997 — the deductibility of loan interest and rental expenses against other income.
How is depreciation calculated for investment property?
Two depreciation categories under the Income Tax Assessment Act 1997: (1) Division 43 Capital Works — the building structure depreciated at 2.5% per year over 40 years (or 4% over 25 years for some industrial buildings). Available only for buildings constructed AFTER 16 September 1987 (residential).
The construction cost — not the property's market value — is what's depreciated. A new $400,000 build = $10,000/year for 40 years. (2) Division 40 Plant & Equipment — items like air conditioning, carpet, blinds, dishwashers, ovens.
Depreciated using effective life. Important: Treasury Laws Amendment 2017 removed Div 40 deductions for SECOND-HAND residential plant — i.e., when an investor buys an existing property, they can NOT depreciate any pre-existing plant items, only new replacements they install.
What expenses can I deduct on a rental property?
Common deductible expenses (deductible in the year incurred, against rental income and other income): (1) Interest on the investment loan (principal repayments are NOT deductible). (2) Property management fees (5-10% of rent typically). (3) Council rates and water rates. (4) Strata/body corporate fees. (5) Land tax. (6) Building and contents insurance. (7) Cleaning, gardening, pest control. (8) Repairs and maintenance (immediate deduction). (9) Quantity surveyor fees for depreciation schedule. (10) Travel — REMOVED for residential property post-1 July 2017 (still claimable for commercial). (11) Loan establishment fees, broker fees, mortgage discharge fees — borrowing costs deductible over 5 years or loan term, whichever is shorter. CAPITAL improvements (renovations, extensions) are NOT immediately deductible — they form part of cost base for CGT.
How does the 50% CGT discount work on rental property?
When you sell an investment property held >12 months as an individual or trust, only 50% of the capital gain is added to your assessable income (post-loss-offset). The discount is half-removed for non-residents on assets acquired after 8 May 2012 and unavailable for companies.
SMSFs receive 33.33% discount (1/3). Cost base for CGT = purchase price + buying costs (stamp duty, legal fees) + capital improvements + selling costs (agent, legal, advertising) − depreciation claimed (cost base reduction).
Capital losses on the property can offset capital gains, with unused losses carried forward indefinitely against future capital gains only (not income). This is the law for the 2026-27 income year; from 1 July 2027 the 50% discount is replaced by cost-base indexation plus a 30% minimum tax rate on net capital gains accruing after that date, with new residential dwellings and affordable housing able to elect to keep the 50% discount.
What is the difference between negative, neutral, and positive gearing?
Negative gearing: rental expenses > rental income → loss reduces taxable income at marginal rate. Common in high-growth, low-yield markets (Sydney, Melbourne inner-ring).
Neutral gearing: rental expenses ≈ rental income → no loss, no profit, no tax effect. Positive gearing: rental income > rental expenses → profit added to taxable income.
Common in regional areas and mining towns where yields are 6-9% but capital growth is lower. Strategy depends on your tax bracket: higher-rate taxpayers benefit more from negative gearing's tax shield; lower brackets often prefer positive gearing for cash-flow stability.
The strategy chosen also affects loan structure (interest-only vs principal+interest).
Has the Australian government restricted negative gearing?
Yes — it is now law. Labor's 2016 and 2019 platforms proposed restricting negative gearing to new builds and cutting the CGT discount to 25%, and both elections were lost; but the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament on 25 June 2026 and commences 1 July 2027.
From that date, established residential properties acquired after 7:30pm AEST on 12 May 2026 can only offset rental losses against residential property income (unused losses carried forward), not against salary and wages. Properties held before that cut-off are grandfathered, and new builds keep full negative gearing.
The 50% CGT discount is separately replaced from 1 July 2027 by cost-base indexation plus a 30% minimum tax rate on net capital gains. Nothing changes for the 2026-27 income year — this calculator models the rules currently in force.
How is negative gearing affected by interest-only loans?
Interest-only (IO) loans maximise the tax-deductible interest portion of repayments while keeping principal stable — increasing the negative-gearing tax benefit. APRA and ASIC tightened IO lending standards from 2017 onwards: typical IO term capped at 5 years (sometimes 10), then converts to principal+interest (P+I), and IO portfolio share at lenders capped.
Owner-occupier IO loans are very rare; investment IO loans are still common but with tighter serviceability checks. Max LVR: typically 80% for IO investment, vs 95% P+I owner-occupier.
IO interest rates carry a premium of 0.20-0.50 percentage points above P+I. Long-term, P+I builds equity faster — the tax benefit of IO is partially offset by higher rates.
What is the marginal tax rate impact on negative gearing benefits?
Tax saving from a $20,000 rental loss varies by bracket (FY 2026-27): 15% bracket (income $18,201-$45,000) → $3,000 saved (this band was cut from 16% to 15% on 1 July 2026; FY2025-26 returns lodged now used 16% → $3,200). 30% bracket ($45,001-$135,000) → $6,000 saved. 37% ($135,001-$190,000) → $7,400 saved. 45% (>$190,001) → $9,000 saved. Plus 2% Medicare levy → 32%/39%/47% effective.
Those are bracket rates; below $66,667 the low income tax offset taper and the Medicare levy phase-in change them, so on the full calculation a $20,000 loss saves $3,495 at a $40,000 income and $6,125 at $60,000. Higher-bracket taxpayers gain proportionally more from negative gearing — which is why ATO data shows 60% of investment-property losses are claimed by taxpayers in the top two tax brackets.
Strategy implication: those in low brackets often benefit more from positive-gearing or capital-growth-focused strategies, while high earners prioritise negative-gearing's marginal-rate tax shield.
How long should I hold an investment property?
Holding-period considerations (factual, not advice): (1) >12 months: 50% CGT discount activates (s.115-25 ITAA 1997). (2) 5-7 years: covers 1-2 property cycles in most Australian capitals; smooths out short-term volatility. (3) 10+ years: typically achieves meaningful capital growth in growth markets after compounding. (4) Round-trip costs are significant: stamp duty (3-5%), agent fee (2-3%), legal fees, bank fees, mortgage discharge — selling within 3-5 years often results in capital loss net of round-trip costs even with paper gain. ATO data shows median hold for investor-resold properties is approximately 8 years.
The cumulative cash-flow impact of negative gearing also evens out as rents typically grow ~3-4% p.a. while interest cost remains fixed (or falls during refinance) — many properties become neutral or positive after 5-8 years.
What records should I keep for an investment property?
ATO requires retention for at least 5 years after the income tax return is lodged (longer if affecting CGT — typically 5 years post-disposal). Essential records: (1) Settlement statement and contract of sale. (2) Quantity surveyor's depreciation schedule (one-off cost ~$700, deductible). (3) All loan statements showing interest paid, plus any redraws (redraw for personal use can taint deductibility). (4) Annual property manager statements. (5) Receipts for repairs, maintenance, insurance. (6) Council rates and water rates notices. (7) Body corporate / strata fees. (8) For travel pre-1-Jul-2017 (residential) or all years (commercial) — logbook + receipts. (9) Capital improvement receipts (form CGT cost base). (10) Land tax assessments by state.
Software like CG-Reno, BMT Tax Depreciation, and platforms like Property Tree help systematise records.
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Further Reading
Your property + super + savings — one number, kept live
Richify tracks your rent, interest, expenses and depreciation against your actual income, so you see the cash shortfall and the tax saving as they happen rather than at tax time — and the property sits beside your super, shares and savings, so you can tell whether it is actually making you wealthier. Free, no ads.
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