Negative gearing calculator Australia — the 2026 guide

What is negative gearing?

Negative gearing happens when the costs of owning your investment property — loan interest, council rates, insurance, maintenance, depreciation — add up to more than the rent it pays you. The difference is an annual loss, and under Australian tax law, you can offset that loss against your other taxable income (your salary, your business income, other investment returns).

That's the whole thing. Your property loses money on paper; the paper loss reduces your tax bill. The real money still goes out the door each month, but a portion of it comes back as a tax refund. The strategy assumes the property's capital value is growing faster than the after-tax holding cost — that's what makes it a strategy instead of a slow bleed.

In Australia, negative gearing has been legal since 1985 and is used by around 1.3 million investors. The rules are set at the Commonwealth level by the ATO. State-level rules (tenancy, land tax, stamp duty) don't affect the negative gearing calculation itself, though they shape your gross numbers.

The negative gearing formula

Compare progressive income tax before and after the rental result. A loss can cross tax brackets, so applying one marginal rate to the whole loss can overstate the benefit. Depreciation changes tax, not cash paid. A rental profit may create additional tax.

What you can claim as a deduction

The ATO allows a long list of deductions against rental income. The main ones:

• •Loan interest. Usually the biggest single deduction. Only the interest portion of the mortgage — principal repayments are not deductible.
• •Council rates and water charges. Apportioned to the current financial year. Multi-quarter rates notices need to be split.
• •Landlord insurance premiums. Fully deductible in the year paid.
• •Strata / body corporate fees. Quarterly levies are fully deductible. Special levies for capital improvements have tricky rules — check with your accountant.
• •Property management fees. The agent's management fee, letting fee, and inspection fees.
• •Repairs and maintenance. Deductible in full in the year paid. But "improvements" (anything that makes the property better than before) must be depreciated under Division 40 or 43 instead.
• •Depreciation — Division 40. Plant and equipment (dishwashers, carpets, blinds, aircon). 4–10 year useful life.
• •Depreciation — Division 43. Capital works (the building itself). 2.5% per year over 40 years for post-1987 builds.
• •Advertising for tenants. Listing fees, photography, signage.
• •Legal fees for lease preparation. Only for lease drafting. Legal fees for buying the property go to the cost base instead.
• •Pest control and cleaning. Between tenancies or ongoing.
• •Travel. Generally not deductible since 2017 — rare exceptions for property managers and corporate landlords.

Division 40 vs Division 43 depreciation — the bit most landlords get wrong

Depreciation is where the real money hides. It's also where most self-managing Australian landlords leave money on the table.

There are two separate regimes:

Here's the thing: most landlords over five years in just forget about Division 43. The building depreciation is silent — no invoice, no receipt, no annual prompt. But on a 2010-build apartment with a $400,000 construction cost, it's $10,000/yr in deductions you aren't claiming. That's $3,000 to $4,500/yr in tax benefit depending on your marginal rate.

The fix: get a quantity surveyor's depreciation schedule. One-off cost typically $600–$800 (tax-deductible itself). It maps every Division 40 asset and the Division 43 construction cost for the building's remaining 40-year life. You use that one schedule every year — your accountant won't write it for you. PropAlly's PropertyTax module will extract every line item from a QS schedule PDF automatically once you upload it.

2026–27 resident income tax brackets

These rates exclude Medicare levy and tax offsets. The last column assumes the entire $1,000 deduction remains within that bracket; deductions near a threshold can give a different result.

Rates for adult Australian residents for the full 2026–27 year. The calculator also supports 2025–26, when the first taxable band was 16%. Medicare levy, surcharge, tax offsets and HELP are excluded; your actual tax outcome may differ.

Worked example — a $600/week property

Assume other taxable income of $120,000 in 2026–27 and the annual figures below. Medicare levy, tax offsets and principal repayments are excluded.

The annual cash shortfall is $12,300 before income tax and $6,210 after the estimated $6,090 tax reduction. The tax reduction applies to the deductible rental loss, including depreciation. It is not a weekly refund, and this example does not establish the investment’s total return.

A crucial caveat: change the assumptions and the answer moves fast. A 1% interest rate rise takes the cash loss from $12,300 to $17,300. A tenant vacating for 4 weeks costs $2,400 in missed rent. Most Australian landlord calculators don't stress-test the base case — PropAlly's Investor module does.

When negative gearing actually makes sense

Negative gearing isn't a strategy on its own. It's a tax consequence of owning a loss-making property. The strategy only works if:

• •Consider capital growth alongside cash holding costs, purchase and sale costs, and any capital gains tax. Growth is not guaranteed.
• •You can comfortably afford the weekly out-of-pocket number, even with a 2-3% interest rate shock.
• •You have a long enough investment horizon (7-10+ years) for capital growth to compound. Negative gearing a property you need to sell in 18 months is usually a mistake.
• •Check the effect at your actual taxable income. A loss that crosses brackets or falls below the tax-free threshold may provide less tax relief than a flat marginal-rate estimate.
• •The property will eventually become positively geared as rents rise — otherwise you're locked into the cash drain forever.

Five mistakes Australian landlords make with negative gearing

1. Not claiming Division 43 depreciation. Every post-1987 build qualifies. On most properties this is $5,000–$15,000/yr in deductions sitting invisible. Get a QS schedule once; use it every year.
2. Apportioning rates to the wrong financial year. Councils issue notices quarterly. Only the amount that relates to the current FY is deductible this year — the rest goes next year. Getting this wrong is the #3 audit trigger for rental properties.
3. Confusing repairs with improvements. Fixing a broken dishwasher is a repair (fully deductible). Replacing it with a better one is an improvement (depreciated). The ATO distinguishes and so should you.
4. Claiming full loan interest when the loan is partly personal. If you redrew $30k of your property loan for a holiday, the interest on that $30k isn't deductible. Mixed-purpose loans need careful apportioning.
5. Forgetting that negative gearing only makes sense if the property grows. The tax benefit reduces your holding cost. It doesn't create wealth. Capital growth creates wealth. If a property isn't going to grow, the tax benefit is just putting lipstick on a losing asset.

Frequently asked questions