How much tax does negative gearing actually save?

Negative gearing occurs when the costs of owning an investment property — including loan interest, management fees, rates, and depreciation — exceed the rental income it earns. The resulting loss is deductible against your other income (such as salary), reducing the tax you pay. The ATO allows this because the investor is expected to make a capital gain when the property is eventually sold.

The net rental loss is added to your tax return and reduces your total taxable income. If you earn $120,000 and your property makes a $15,000 loss, you are taxed on $105,000. At the 32% marginal rate (including Medicare levy), this saves you approximately $4,800 per year. The calculator above shows the exact saving based on current 2026–27 tax brackets.

Deductible expenses include: loan interest, property management fees, council rates, water rates, landlord insurance, repairs and maintenance, and building/capital works depreciation. You cannot claim the principal portion of your loan repayments, or personal expenses. Depreciation is a non-cash deduction — you get the tax benefit without actually spending the money that year.

Negative gearing only makes sense if you expect strong capital growth that outweighs the ongoing cash losses — even after the tax saving. The tax benefit is proportional to your marginal rate, so high-income earners get the most benefit. At a 47% marginal rate, nearly half of every dollar of rental loss is returned via the tax refund. Lower-income investors face higher after-tax holding costs.

A negatively geared property costs more to hold than it earns in rent — the investor tops up the shortfall from their own income but receives a tax deduction. A positively geared property earns more rent than it costs, creating taxable income. Investors choose between these strategies based on their income tax bracket, cash flow needs, and outlook for capital growth.

Yes — Australian tax residents can negatively gear an investment property regardless of where they are physically located. If you are a non-resident for tax purposes, the rules are more complex: you can still claim deductions against Australian rental income, but you cannot offset rental losses against foreign income. Speak to an Australian tax adviser if you are unsure of your residency status.

There are two types of depreciation available for investment properties. Division 43 (building works) allows you to deduct 2.5% of the original construction cost per year for buildings constructed after September 1987. Division 40 (plant and equipment) covers items like air-conditioning, carpets, and appliances, depreciated at their effective life rate. A quantity surveyor can prepare a depreciation schedule for ~$500–700, and many property investors find the schedule generates $2,000–8,000 per year in additional non-cash deductions — often paying for itself many times over.

Higher interest rates increase your borrowing costs, which widens the rental loss and increases your deductible amount — at the same time, they also increase the cash you need to service the loan each month. For investors on high marginal tax rates, a larger deduction partly cushions the blow; for those on lower rates, rising rates significantly erode cash flow. Use this calculator to model different interest rate scenarios and see your weekly out-of-pocket cost at each level.

Land tax is levied by state governments on the unimproved value of investment land above a threshold. It is a deductible expense for tax purposes, which means it reduces your rental income (or adds to your rental loss) and generates an additional tax saving. Land tax thresholds and rates vary significantly by state — for example, NSW imposes land tax on investment properties where land value exceeds $1,075,000 (2025–26), while Victoria has a lower threshold of $300,000. Check your state revenue office for current rates.