Negative Gearing Calculator

Negative gearing occurs when the costs of owning an investment property (including mortgage interest, maintenance, insurance, and depreciation) exceed the rental income it generates. The resulting loss can be offset against your other taxable income such as your salary, reducing your overall tax bill. For example, if your rental income is $23,400 but your property expenses total $38,000, you have a rental loss of $14,600 that reduces your taxable income.

The tax benefit depends on your marginal tax rate. When your investment property makes a loss, that loss reduces your taxable income. The actual tax saving is the rental loss multiplied by your marginal tax rate (including Medicare levy). For example, if your rental loss is $14,600 and your marginal tax rate is 37% plus 2% Medicare levy, your tax saving would be approximately $5,694. The higher your income and marginal tax rate, the greater the tax benefit.

Depreciation is a non-cash deduction that accounts for the wear and tear of your investment property and its fixtures. There are two types: capital works deductions (Division 43) for the building structure at 2.5% per year, and plant and equipment depreciation (Division 40) for items like carpets, blinds, and appliances. Depreciation increases your deductions without any actual cash outlay, making your property more negatively geared on paper and increasing your tax benefit. A quantity surveyor can prepare a depreciation schedule for your property.

While negative gearing means you are making a cash loss each year, the strategy relies on long-term capital growth to deliver overall returns. If your property increases in value over time, the capital gain when you eventually sell should exceed the total after-tax holding costs. Australian property has historically averaged around 5-7% annual growth, though this varies significantly by location and market conditions. Capital gains on properties held for more than 12 months are eligible for the 50% CGT discount.