Negative Gearing Calculator

What Is Negative Gearing?

Your rental property is negatively geared when your total deductible expenses exceed your rental income — you're making a loss on paper. That might sound like a bad thing, but it's actually the foundation of one of Australia's most widely used property investment strategies. The Australian Taxation Office allows you to offset that rental loss against your other income, such as your salary or wages, which reduces your overall taxable income and therefore your tax bill. This is why many Australian investors deliberately hold negatively geared properties — the combination of tax savings and long-term capital growth can make a paper loss worth carrying.

This calculator helps you work out whether your rental property is negatively geared, positively geared, or neutrally geared, and shows you exactly how much your gearing position is saving or costing you after tax.

How Negative Gearing Works

The mechanics are straightforward. You add up all of your rental income for the year, then subtract every deductible expense — mortgage interest, council rates, insurance, property management fees, repairs, depreciation, and everything else the ATO allows. If your total deductible expenses are greater than your rental income, the difference is your net rental loss.

That rental loss doesn't just sit on the shelf. It gets subtracted from your other taxable income. If you earn $100,000 in salary and your rental property produces a $15,000 loss, your taxable income drops to $85,000. You pay tax on $85,000 instead of $100,000, which means a lower tax bill.

The size of the tax benefit depends entirely on your marginal tax rate. Before Medicare Levy, someone on the 30% bracket who has a $10,000 rental loss saves $3,000 in tax, while someone on the 45% bracket saves $4,500. If the simplified 2% Medicare Levy saving also applies, those figures become $3,200 and $4,700. The higher your income, the more valuable each dollar of rental loss becomes as a tax deduction.

Positive Gearing vs Negative Gearing vs Neutral Gearing

There are three possible gearing positions for a rental property, and understanding the distinction matters for both tax planning and cash flow management.

A positively geared property is one where rental income exceeds total deductible expenses. You're making a profit from the property, which is added to your other taxable income and taxed at your marginal rate. Positive gearing means more cash in your pocket each week, but also a higher tax bill.

A negatively geared property is the opposite — your deductible expenses exceed your rental income. The resulting loss reduces your taxable income from other sources, which produces a tax benefit. You're spending more than you're earning from the property, but the tax system softens the blow.

A neutrally geared property breaks even — rental income and deductible expenses are roughly equal. There's no rental profit to be taxed and no loss to offset against other income. In practice, true neutral gearing is uncommon because the numbers rarely land exactly on zero.

Your gearing position isn't fixed. It shifts over time as your rent increases, your mortgage interest payments change (especially as you pay down the loan), and your other expenses fluctuate. Many properties that start negatively geared gradually become positively geared as rents rise and interest costs fall.

What Expenses Count as Deductions

The ATO Rental Properties Guide (NAT 1729) sets out a comprehensive list of deductible expenses for rental property owners. These are the costs you can subtract from your rental income when calculating your net rental position. The calculator groups them into four categories.

Interest on your loan is almost always the single largest deduction for a negatively geared property. Only the interest portion of your mortgage repayments is deductible — principal repayments are not a tax deduction. If your loan is split between investment and private purposes, you can only claim the interest on the investment portion.

Council rates, water rates, and land tax are deductible in the financial year they're incurred. These are straightforward costs that every property owner pays regardless of whether they self-manage or use an agent.

Insurance covers building insurance, landlord insurance, contents insurance (if you provide furnishings), and public liability insurance. Loss of rent insurance is also deductible.

Property management fees are typically 7–10% of rent collected, plus letting fees and other charges. If you self-manage your property, you don't incur this cost, which directly improves your cash position. Self-managing landlords should leave this input at $0 in the calculator.

Repairs and maintenance are deductible in the year incurred, provided they restore something to its original condition rather than improving it beyond its original state. Replacing a broken tap with a similar tap is a repair. Replacing a basic kitchen with a premium kitchen is a capital improvement, which is not immediately deductible (though it may qualify for capital works deductions over time). The distinction between repairs and capital improvements is set out in ATO Taxation Ruling TR 97/23.

Strata or body corporate fees apply to apartments, units, and townhouses in strata-titled complexes. These cover shared building maintenance, common area insurance, and building management.

Depreciation — Division 40 (plant and equipment) covers the decline in value of removable assets within the property: carpet, blinds, hot water systems, air conditioners, ovens, dishwashers, smoke alarms, and similar items. Each asset has an effective life determined by the ATO, and you claim a portion of its cost each year. This is a non-cash deduction — you don't spend any money in the year of the claim, but it increases your rental loss on paper. Use our Depreciation Calculator to estimate Division 40 deductions for your property.

Depreciation — Division 43 (capital works) covers the building structure itself. For residential properties where construction commenced after 15 September 1987, you can claim 2.5% of the original construction cost each year for 40 years. This is also a non-cash deduction. A quantity surveyor report is typically needed to establish the construction cost if you weren't the original builder.

Other deductible expenses include advertising for tenants, pest control, cleaning, gardening and lawn mowing, legal expenses (for tenant disputes, not property purchases), stationery and postage, accounting fees, and bank charges. Travel expenses to inspect a rental property are deductible only in limited circumstances — from 1 July 2017, travel deductions for residential rental properties are denied unless an exception applies.

Source: ATO, Rental Properties Guide 2025 (NAT 1729), pp. 16–36. Available at: ato.gov.au

The Role of Depreciation in Negative Gearing

Depreciation deserves special attention because it's frequently the factor that tips a property from positively geared to negatively geared — and it's a non-cash deduction.

When you claim depreciation, you're deducting the theoretical decline in value of the building structure (Division 43) and the plant and equipment inside it (Division 40). You don't actually pay anything in the year you make the claim. The money was spent when the property was built or when the assets were installed. But the ATO allows you to spread that cost over the asset's effective life, claiming a portion each year as a deduction against your rental income.

This means many investors are negatively geared on paper — their total deductions (including depreciation) exceed their rental income — while their actual cash flow is positive. The rent they receive covers all of their out-of-pocket expenses (interest, rates, insurance, management fees, repairs), but the addition of depreciation pushes the total deductions above the rental income line.

This distinction between cash loss and tax loss is critical. A property that costs you nothing out of pocket but generates a $5,000 tax loss thanks to depreciation still delivers a tax benefit. On the 30% bracket plus Medicare Levy, that's a $1,600 tax refund for money you never spent.

The calculator separates cash expenses from non-cash expenses (depreciation) so you can see both your true cash position and your tax position. The comparison line "Without depreciation, your property would be [positively/negatively] geared by $X" makes this relationship explicit.

Important: From 9 May 2017 (2017–18 Budget), deductions for the decline in value of second-hand plant and equipment (Division 40) in residential rental properties are only available if the property is used in carrying on a business or the owner is an excluded entity. This restriction applies to assets acquired second-hand — new assets installed by the current owner are unaffected.

How Your Marginal Tax Rate Affects the Benefit

The tax benefit from negative gearing is directly proportional to your marginal tax rate. The same rental loss produces very different outcomes depending on your income level. The following table illustrates the indicative tax saving on a $10,000 rental loss at each marginal tax bracket for the 2024–25 and 2025–26 financial years. To match the calculator output, the dollar column includes the 2% Medicare Levy as part of the simplified effective rate.

Source: ATO, Tax rates – Australian resident, last updated 18 June 2025: ato.gov.au

The Medicare Levy of 2% applies on top of marginal income tax rates. Low-income earners may be eligible for a Medicare Levy reduction or exemption, so the $200 figure in the tax-free threshold row may not apply in practice. For simplicity, this calculator applies the 2% levy across the board.

The practical implication is clear: a high-income investor on the 45% marginal rate plus Medicare Levy gets significantly more tax benefit than someone on the 16% rate plus Medicare Levy from the same rental loss. This is why negative gearing is often described as more beneficial for higher-income earners — the same dollar of deduction is worth more in tax saved.

Self-Managing vs Using a Property Manager

Property management fees are one of the largest ongoing costs for rental property owners. Agents typically charge 7–10% of rent collected, plus additional fees for letting, inspections, and lease renewals. On a property renting for $500 per week ($26,000 per year), management fees of 8.5% amount to $2,210 per year.

Removing this cost by self-managing your property directly improves your cash position. Yes, the deduction disappears — but deductions only return a fraction of the cost (your marginal tax rate), while the saving puts the full amount back in your pocket.

Consider the example above: paying $2,210 in management fees gives you a tax deduction worth about $707 using this calculator's simplified 30% marginal rate plus 2% Medicare Levy. But if you self-manage, you save the full $2,210 and forgo only about $707 in tax benefit — a net improvement of about $1,503 per year.

The calculator includes a comparison line that shows the impact of property management fees on your tax position. If you enter a value for property management fees, it will show how much your tax benefit would change if you self-managed instead.

Self-managing isn't for everyone — it requires time, knowledge of tenancy law, and confidence handling tenant relationships. But for landlords who are willing to learn, the financial benefit is nearly always positive. Landlord Wise is built specifically for self-managing landlords, providing guided forms, record keeping, reminders, and AI-powered tenancy law assistance that make self-management practical.

Common Mistakes

Claiming principal repayments. Only the interest component of your mortgage repayments is deductible. Principal repayments reduce your loan balance — they're not an expense, they're building equity. This is one of the most common errors the ATO identifies in rental property tax returns.

Confusing repairs with capital improvements. Repairing a broken item to restore it to its original condition is deductible immediately. Improving an item beyond its original state — such as replacing laminate benchtops with stone — is a capital improvement and must be depreciated over time under Division 40 or Division 43, not claimed as an immediate deduction.

Not claiming depreciation. Many property owners, particularly those who self-manage, don't obtain a depreciation schedule and miss out on significant non-cash deductions. Division 43 capital works deductions alone can be worth thousands of dollars per year for properties built after 1985.

Confusing cash flow with gearing position. A property can be cash-flow positive (rent covers all out-of-pocket costs) but still negatively geared on paper due to depreciation deductions. Conversely, a property can be positively geared (producing taxable profit) but still feel like a cash drain if you're making large principal repayments that aren't deductible.

Not understanding that positive gearing means more tax. Some investors chase positive gearing without realising that the rental profit is added to their other income and taxed at their marginal rate. A $5,000 rental profit on the 37% bracket costs $1,850 in additional tax before Medicare Levy, or about $1,950 if the 2% Medicare Levy also applies.

Claiming expenses for private use. If you use the property for personal purposes for part of the year (such as a holiday home), you must apportion your expenses and can only claim the portion attributable to income-producing use.

How Landlord Wise Helps

Negative gearing calculations are only as good as your expense tracking. If you're not capturing every deductible cost accurately, you're either missing deductions or claiming incorrectly — both of which cost you money.

Landlord Wise tracks your rental income and expenses automatically, categorised to match ATO requirements. Wise AI can answer your tax questions grounded in actual ATO source documents — not generic AI training data — so you get reliable answers about what's deductible and what isn't. The Depreciation Calculator helps you estimate the non-cash deductions that many self-managing landlords miss.

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Frequently Asked Questions

What is negative gearing and how does it work?

Negative gearing occurs when the total deductible expenses on your rental property exceed the rental income it generates. The resulting net rental loss can be offset against your other taxable income (such as salary or wages), which reduces your overall tax bill. The tax benefit equals the rental loss multiplied by your marginal tax rate plus Medicare Levy. For example, a $10,000 rental loss on the 30% marginal rate (plus 2% Medicare Levy) produces a tax saving of $3,200.

Is negative gearing good or bad for property investors?

Neither inherently. Negative gearing is a tax outcome, not a strategy by itself. It means you're spending more on the property than you're earning from rent, which produces a tax benefit but also a real financial cost. Whether that trade-off makes sense depends on the property's capital growth prospects, your income level, your cash flow capacity, and your investment timeframe. Many successful property investors use negative gearing as part of a long-term wealth-building strategy, accepting short-term losses in exchange for capital growth and tax benefits.

Can I claim my mortgage repayments as a tax deduction?

No — only the interest portion of your mortgage repayments is deductible. Principal repayments reduce your loan balance and are not a deductible expense. Your lender provides an annual loan statement that separates interest from principal, or you can find this breakdown in your loan account transaction history.

How does depreciation affect my gearing position?

Depreciation (Division 40 for plant and equipment, Division 43 for capital works) is a non-cash deduction — you claim it without spending any money in the current year. This means depreciation can push a property from positively geared to negatively geared on paper, even though your actual cash flow may be positive. The calculator shows the impact of depreciation on your gearing position with a comparison line: "Without depreciation, your property would be [positively/negatively] geared by $X."

What happens if my property becomes positively geared?

If your rental income grows to exceed your total deductible expenses, your property becomes positively geared. The rental profit is added to your other taxable income and taxed at your marginal rate. This commonly happens over time as rents increase while mortgage interest payments decrease (as you pay down the loan). Positive gearing means more cash flow but a higher tax bill.

Is negative gearing going to be abolished in Australia?

The 2026–27 Federal Budget announced changes from 1 July 2027, rather than abolishing negative gearing altogether. Budget material says existing arrangements remain unchanged for properties held before 7:30 pm AEST on 12 May 2026, and investors in new builds will still be able to deduct losses from other income. For established residential properties bought after Budget night, losses are expected to be limited to residential property income, with unused losses carried forward. Check current ATO or Budget guidance before relying on a tax outcome.

Does self-managing change my gearing position?

Yes. Property management fees are a deductible expense, so removing them by self-managing reduces your total deductions and moves your gearing position in a positive direction. However, the net financial effect is almost always positive — you save the full management fee but only lose a fraction of it as a tax deduction. Using the calculator's simplified 30% marginal rate plus 2% Medicare Levy, a landlord paying $2,500 per year in management fees saves $2,500 but loses about $800 in tax benefit by self-managing, netting about $1,700 better off.

What expenses can I claim as deductions on my rental property?

The ATO allows deductions for: interest on loans, council rates, water rates, land tax, insurance (building, landlord, contents, public liability), property management fees, advertising for tenants, body corporate fees, cleaning, gardening, pest control, repairs and maintenance, depreciation of plant and equipment (Division 40), capital works deductions (Division 43), legal expenses for tenant disputes, stationery and postage, and accounting fees. The full list is published in the ATO Rental Properties Guide (NAT 1729).