Negative Gearing Explained

Negative gearing is one of the most discussed topics in Australian property investing. In simple terms, a property is negatively geared when it costs you more to hold than it earns in rent. The gap between your costs and your income creates a tax deduction.

How it works

• You earn $500/week in rent ($26,000/year).
• Your costs are $35,000/year (mortgage interest, rates, insurance, management fees, maintenance).
• You're $9,000 out of pocket — this is your rental loss.
• You can also claim depreciation on the building and fittings (say $5,000/year).
• Total deduction: $14,000 against your other income (salary, business income, etc.).

The tax benefit

• Your deduction reduces your taxable income. The actual dollar saving depends on your marginal tax rate.
• At a 37% marginal rate, a $14,000 deduction saves you $5,180 in tax.
• This means your real out-of-pocket cost drops from $9,000/year to about $3,820/year ($73/week).
• The strategy only makes financial sense if the property's capital growth over time exceeds your after-tax holding costs.

When negative gearing makes sense

• You're buying in a high-growth area where capital appreciation is likely to outpace your holding costs.
• You have stable, predictable income to absorb the weekly shortfall.
• You're planning to hold for 7+ years, giving growth time to compound.
• Your marginal tax rate is high enough that the deduction provides meaningful relief.

When to be cautious

• If your income is irregular or your employment situation could change.
• If interest rates rise, your holding costs increase but the tax benefit may not fully compensate.
• If you're relying entirely on capital growth that may not materialise.
• If you can't comfortably cover the weekly shortfall from your regular income.

How PropPulse calculates this

• The Deal Analysis tool automatically detects when a property is negatively geared.
• It estimates your annual tax saving based on the rental loss, depreciation, and your marginal tax rate.
• It shows your after-tax weekly cost — what the property actually costs you to hold after the tax benefit.

Related guides

• Debt Recycling Explained
• Stamp Duty by State
• Deal Screening Playbook

Education only: tax outcomes are personal and depend on your individual circumstances. Always consult a qualified accountant or tax professional before making investment decisions based on tax benefits.