Negative Gearing Calculator
Work out the rental loss on an Australian investment property, the tax it saves at your marginal rate, and what the property actually costs you each week.
How to use this calculator
- 1Enter the weekly rent and a realistic vacancy allowance rather than assuming 52 weeks let.
- 2Enter the loan and rate — only the interest is deductible, so use the rate rather than the repayment.
- 3Add rates, insurance, strata, management and repairs as other expenses, and a depreciation estimate from a quantity surveyor's schedule if you have one.
- 4Read the after-tax weekly figure: that is what the property actually costs you to hold.
How the calculation works
Tax loss = rent − interest − expenses − depreciation. Tax saved = loss × marginal rate. Net cash = rent − interest − expenses + tax saved- depreciation
- Deductible but never paid out, which is why cash flow and the tax result differ
- marginal rate
- The loss reduces income from the top down, so it saves tax at the highest rate you pay
Only the interest portion of a mortgage payment is deductible. Principal repayments are not a cost at all in tax terms — they build equity — which is why a principal-and-interest loan produces a smaller deduction than the repayment suggests.
Depreciation is the reason cash flow and taxable result diverge. It reduces the tax bill without being spent, so a property can be negatively geared on paper while being close to cash-flow neutral in practice.
The saving is worth the loss multiplied by the marginal rate, never the loss itself. Spending a dollar to save 39 cents is only sensible if the capital growth justifies the other 61 cents.
Worked example
A $700,000 loan on $130,000 of salary
- 1.Rent: $650 × 50 weeks = $32,500.
- 2.Interest: $700,000 × 6.2% = $43,400, plus $8,000 of other expenses.
- 3.Cash shortfall before tax is $18,900, and adding $6,000 of depreciation gives a $24,900 tax loss.
- 4.At $130,000 the marginal rate is 32% — the 30% bracket plus the 2% Medicare levy — so the loss saves $7,968.
- 5.That leaves $10,932 a year out of pocket, or about $210 a week.
Result: About $210 a week out of pocket after the refund
What negative gearing actually is
A property is negatively geared when its deductible costs — interest, rates, insurance, management, repairs and depreciation — exceed the rent it earns. The resulting loss can be deducted against other income, including salary, reducing the tax paid on that unrelated income.
That last point is what makes Australia unusual. Many countries quarantine rental losses so they can only offset future rental income. Australia allows them against any income, which is precisely why the strategy is so widespread there and why it features in every federal election.
It is worth being clear about the mechanics: a loss does not generate a refund of its own size. It reduces taxable income, so it saves tax at the marginal rate — 32 cents in the dollar for someone on $130,000, being the 30% bracket plus the 2% Medicare levy. The other 68 cents is money genuinely spent.
Cash flow and tax result are different numbers
The two figures that matter most are frequently confused, and the gap between them is depreciation.
Cash flow is what leaves your bank account: rent in, interest and expenses out. The taxable result subtracts depreciation as well — a deduction for the declining value of the building and fittings that is never actually paid to anyone.
The consequence is that a property can show a substantial tax loss while being close to cash-neutral, or even show a loss on paper and put money in your pocket after the refund. That is the most favourable version of the strategy, and it depends heavily on a proper depreciation schedule from a quantity surveyor — often worth several thousand dollars a year on a newer property, and routinely left unclaimed.
It also means a property advertised as "positively geared after tax" may still cost money before the refund arrives. The refund typically comes annually, so the shortfall has to be funded from salary in the meantime unless a PAYG withholding variation is arranged.
The bet underneath the tax
Negative gearing is not a way of making money on rent. By definition the property loses money each year, and the tax system refunds a fraction of that loss. Losing a dollar to get 39 cents back is only rational if something else makes up the difference.
That something is capital growth. The strategy is a leveraged bet on the property rising in value by more than the accumulated after-tax losses. If it does, the gain is taxed on favourable terms — held over twelve months, only half is taxable — and the deferral is genuinely valuable. If it does not, the losses are simply losses.
Two risks deserve naming. Interest rate rises hit the largest expense directly, and a two-point move on a $700,000 loan adds $14,000 a year to the shortfall. And the strategy is most attractive to high earners precisely because their marginal rate is highest — which means the people for whom it works best are also the ones exposed to the largest absolute loss if growth disappoints.
What this assumes, and where it stops
Assumptions
- An Australian resident individual taxed at 2026-27 marginal rates.
- The property is fully rented apart from the vacancy allowance entered.
- The whole loan relates to the investment property, so all interest is deductible.
- Depreciation is claimed at the amount entered, ideally from a quantity surveyor's schedule.
Limitations
- Capital gains tax on eventual sale is not modelled — depreciation claimed reduces the cost base and increases the future gain.
- Land tax, which varies by state and by total holdings, is excluded.
- Only interest is treated as deductible; a principal-and-interest repayment will be larger than the figure used.
- A PAYG withholding variation can spread the refund across the year and is not modelled.
Common questions
How does negative gearing save me tax?
The rental loss is deducted against your other income, including salary, so you pay tax on a lower total. The saving is the loss multiplied by your marginal rate — for someone on $130,000 that is 32 cents per dollar of loss, being the 30% bracket plus the 2% Medicare levy. It is not a refund of the whole loss: the other 68 cents is money you genuinely spent.
Is negative gearing worth it?
Only if capital growth exceeds the accumulated after-tax losses. By definition the property loses money each year and the tax system returns a fraction of that, so the strategy is a leveraged bet on the value rising. It works best for high earners because their marginal rate is highest — which also means they carry the largest absolute loss if growth disappoints.
What is the difference between cash flow and the tax loss?
Depreciation. Cash flow counts only what actually leaves your account — rent in, interest and expenses out. The tax loss also subtracts depreciation on the building and fittings, which is deductible but never paid to anyone. That is why a property can show a large tax loss while being close to cash-neutral, and why a quantity surveyor's depreciation schedule is often worth several thousand dollars a year.
Can I deduct my whole mortgage repayment?
No — only the interest. Principal repayments reduce what you owe and build equity, so they are not a cost in tax terms at all. On a principal-and-interest loan the deductible portion is therefore smaller than the repayment, and it shrinks each year as more of the payment goes to principal. This is one reason investors often prefer interest-only loans on investment properties.
Sources
- Rental properties — claiming interest expenses — Australian Taxation Office
- Rental properties guide — Australian Taxation Office
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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