Negative Gearing in Australia: How It Works in 2026

Negative gearing is one of the most-discussed (and most-misunderstood) features of Australian property investing. Here's how it actually works.

What is negative gearing?

A property is "negatively geared" when its deductible expenses exceed its rental income. That loss can be deducted from your other taxable income (salary, business profits, etc.) under Australia's tax rules.

For an investor on a 37% marginal tax rate with a $10,000 rental loss, the ATO refunds approximately $3,700 — reducing your real out-of-pocket holding cost.

Which expenses are deductible?

• Loan interest (but not principal)
• Property management fees
• Council and water rates
• Insurance, strata, body corporate
• Repairs and maintenance (not improvements)
• Capital works depreciation (Division 43)
• Plant & equipment depreciation (Division 40)

Cash flow vs taxable result

Depreciation is a non-cash deduction — it reduces your tax bill without reducing the cash leaving your bank account. A property can be cash-flow positive but still negatively geared on paper because depreciation pushes its taxable result into a loss.

Capital gains implications

Capital works depreciation reduces your cost base when you sell, increasing capital gains tax. Plant & equipment depreciation generally doesn't affect cost base. Plan for this — the "refund now, tax later" trade-off is real.

Run the numbers

Use our Negative Gearing Calculator to estimate your refund, or the Property Investment Analyzer for a full picture including total return.

Disclaimer: this is educational, not tax advice. The ATO updates depreciation rules frequently — speak to a registered tax agent.