This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.
Key takeaways
- Negative gearing means your rental property's deductible expenses exceed its rental income, and the loss reduces the tax you pay on your other income.
- A $6,000 rental loss at the 37% marginal tax rate saves roughly $2,220 in tax, but you still lose $3,780 in real cash terms.
- The strategy only works long-term if the property grows in value enough to offset the accumulated cash losses when you sell.
- Depreciation deductions can add thousands in non-cash deductions, improving the after-tax position without extra out-of-pocket costs.
- Most landlords with mortgages are negatively geared in the early years, but properties often shift to positive gearing as rents rise and the loan is paid down.
You have probably heard the term a hundred times, but plenty of landlords still aren't entirely sure what negative gearing actually means in practice, or whether their own property qualifies. The short answer: if your rental costs more to hold than it brings in, you're negatively geared. And under Australian tax law, that shortfall can reduce the tax you pay on your other income.
Here's what you need to know.
What Negative Gearing Actually Means
Negative gearing simply means your deductible expenses on a property exceed the rental income it earns. The word "gearing" refers to borrowing to invest, and "negative" means you're running at a loss.
Say your rental property in Brisbane brings in $28,000 a year in rent. Between mortgage interest, council rates, insurance, property management fees, and repairs, your total deductible costs come to $34,000. That's a $6,000 shortfall, and that's your negatively geared loss.
The tax benefit is that this $6,000 loss can be applied against your other taxable income, your salary, for example. If you earn $110,000 from your job, you're now taxed on $104,000 instead. At the 37% marginal rate that applies to income in that bracket, the saving is around $2,220. You still lost $6,000 on the property in cash terms, but the after-tax cost is closer to $3,780.
For a full breakdown of which property expenses count as deductible, see our guide to rental property tax deductions in Australia.
Positive Gearing: The Other Side
A positively geared property earns more in rent than it costs to hold. That sounds better on paper (money in your pocket each month) but it also means the surplus is taxable income.
Neither outcome is inherently better. Which one suits you depends on your cash flow, your tax position, and what you're expecting from the property over time. Use the cash flow calculator to model the full picture for a specific property.
Most landlords with mortgages find themselves negatively geared in the early years of ownership, when interest costs are highest and rent hasn't yet grown enough to cover them. That can shift over time as rents rise and the loan is paid down.
When Negative Gearing Makes Sense
The economics of negative gearing rely on one assumption: that the property grows in value enough to offset the ongoing losses and then some. You're accepting a cash shortfall now in exchange for a capital gain later.
This works when you buy in a suburb with genuine long-term demand, hold for long enough for compounding growth to do its job, and have the income and cash reserves to cover the shortfall without strain.
It doesn't work particularly well if the property stays flat, if you're forced to sell in a downturn, or if the cash shortfall is so large it puts pressure on your finances every month. A $3,000 annual after-tax saving is much less useful if you're having to scramble for cash to cover the gap each fortnight.
Depreciation deductions can meaningfully improve the numbers. A property with strong depreciable assets (relatively new, with appliances and fittings you've installed yourself) can add thousands of dollars in non-cash deductions on top of your regular expenses, deepening the tax benefit without any additional out-of-pocket cost. Read more about how depreciation is calculated, or try the depreciation calculator for a quick estimate.
Always check with your accountant for advice specific to your situation before making decisions based on expected tax outcomes.
The Risks
The most obvious risk is that capital growth doesn't materialise. Negative gearing locks you into ongoing losses that only make sense if the final sale price justifies them. If a property has been costing you $4,000 a year after tax for ten years, you need $40,000 in real capital gain just to break even, before CGT. Use the capital gains tax calculator to estimate your liability on a future sale.
Interest rate movements matter too. A sharp rise in your mortgage rate can push a modestly negative property into deep losses quickly, and the tax benefit alone won't keep pace. You can model rate changes with the mortgage repayment calculator.
There's also the political dimension: negative gearing has been debated in Australia for decades, and any government changes to the rules (whether limiting deductions, quarantining losses, or phasing out the benefit for new purchases) would change the calculation entirely. It has survived every election cycle so far, but it's not guaranteed to remain unchanged forever.
The Political Debate, Briefly
Negative gearing comes up in almost every federal election in Australia. Critics argue it inflates property prices by giving investors a structural tax advantage over owner-occupiers. Proponents argue it supports rental supply and that removing it would reduce investment in housing stock.
Both sides have a point. What neither side can predict with certainty is exactly what would happen to rents or prices if the rules changed. The 1985 quarantining experiment (when negative gearing losses were briefly restricted to apply only against rental income) was reversed in 1987 after rents rose sharply in some cities, though economists still debate whether that was a direct consequence.
The current rules remain in place as of 2026. If you're making long-term investment decisions, it's worth acknowledging that they could change.
Check if Your Property Is Negatively Geared
The simplest way: add up all your deductible expenses for the financial year and compare them to your total rental income. If expenses are higher, you're negatively geared.
The categories to include are mortgage interest (not principal repayments; only the interest portion counts), council rates, water rates, insurance, property management fees, repairs and maintenance, and depreciation. If you're not sure what counts, our rental property tax deductions guide covers each category in detail.
In practice, many self-managing landlords aren't entirely sure where they stand because income and expenses are scattered across bank accounts, email threads, and a drawer of receipts. That makes it hard to answer the basic question: is this property making or costing me money?
Enter your numbers below to see where you stand.
Enter your weekly rent and expenses to see whether your property is negatively or positively geared.
propkt shows you the net position of each property (income against expenses) so you can see at a glance whether a given property is running a surplus or a deficit. The tax summary report breaks it down by property for the full Australian financial year, with deductible expenses separated out and ready to hand to your accountant. It's not tax advice, but it gives you the numbers clearly, which is most of the work.
Log in to your propkt dashboard and check the "By Property" section. If expenses are running ahead of income, you'll see it immediately.