Chartered Accountant Timothy Quinn leads Tax & Accounting at Lawpath. 16+ years in tax advisory, specialising in startup growth and expansion. Passionate about supporting entrepreneurial clients with early-stage investment incentives, restructuring, international exit strategy planning, and more.
If you own an investment property, negative gearing comes down to one key question: Did your property make a taxable loss this financial year?
To answer that, you need to correctly calculate your rental income against your deductible expenses. This matters most at EOFY, when you’re preparing your tax return and deciding what you can claim for the 2025–26 income year.
This guide focuses on how to calculate negative gearing accurately, what to include, and what to avoid so that you can assess your tax position with confidence.
- Your property is negatively geared if your deductible expenses exceed your rental income.
- The calculation is simple. Rental income − expenses − loan interest.
- A loss may reduce your taxable income, but it is not a full refund.
- Not all costs are immediately deductible, and some cannot be claimed at all.
- Getting the calculation right before EOFY helps avoid overclaiming and ATO issues.
Contents
- What is negative gearing in Australia?
- How do you calculate negative gearing?
- How much tax can negative gearing save you?
- What rental property income do you need to include?
- What rental property expenses can you usually claim immediately?
- What rental property expenses are claimed over time?
- What rental property expenses can’t you claim?
- Negative gearing vs positive gearing: What’s the difference?
- Are negative gearing rules changing in Australia?
- What should property investors check before EOFY?
- Common mistakes when calculating negative gearing
- Do you need an accountant to calculate negative gearing?
- FAQs
- Managing your property income correctly
What is negative gearing in Australia?
Negative gearing is a financial strategy widely used in Australian property investment taxes. It is used when you spend more on owning and maintaining a rental property than the income it generates. In simpler terms, you’re making a loss on your investment property.
This strategy is popular among Australian investors for several reasons:
- Tax benefits: You can offset the losses from negatively geared properties against other taxable income, potentially reducing overall tax liability. Think of it as a rental property tax deduction.
- Long-term capital growth: As an investor, you may accept short-term losses in anticipation of significant appreciation in property value over time.
- Increased investment opportunities: Negative gearing can help you enter the property market with less initial capital.
Here is a concrete example: If your property earns $25,000 in rent but has $32,000 in deductible expenses, the property has a $7,000 rental loss.
How do you calculate negative gearing?
Calculating negative gearing in Australia is relatively straightforward once you understand each component involved.
The basic formula is: Rental income − deductible rental expenses − deductible loan interest = net rental position
- If the result is below zero, the property is negatively geared
- If above zero, it is positively geared
- If close to zero, it is neutrally geared
Important: Only loan interest is deductible. Principal repayments are not.
Here is a worked example:
| Item | Amount |
|---|---|
| Annual rental income | $26,000 |
| Loan interest | $21,000 |
| Property management fees | $2,000 |
| Council rates and water charges | $3,000 |
| Insurance, repairs and other costs | $4,000 |
| Total deductible expenses | $30,000 |
| Net rental position | -$4,000 |
In this example, the property is negatively geared by $4,000 because expenses exceed income.
How much tax can negative gearing save you?
A rental loss reduces your taxable income, but it does not mean you receive the full amount back.
To calculate how much you may save on your taxes, use this estimate: Estimated tax benefit = rental loss × marginal tax rate
Here is a specific example from the worked calculation above: If your rental loss is $4,000 and your marginal tax rate is 30%, the estimated tax benefit is $1,200.
The actual outcome depends on your total income, Medicare levy, other deductions, and personal circumstances.
What rental property income do you need to include?
You generally need to report all income related to your rental property, including:
- Rent paid by tenants
- Rental bond amounts retained
- Insurance payouts for lost rent
- Tenant reimbursements for expenses
- Short-term or booking income (if applicable)
You typically report rental income in the year it is received.
What rental property expenses can you usually claim immediately?
To calculate how much you might be able to deduct from your taxable income, you need to understand what you can claim under negative gearing in Australia.
Deductions include:
| Expense | How to treat it |
|---|---|
| Investment loan interest | Usually deductible if used for the property |
| Council rates | Usually deductible when rented or available |
| Water charges | Usually deductible if paid by the owner |
| Property management fees | Usually deductible |
| Advertising for tenants | Usually deductible |
| Landlord insurance | Usually deductible |
| Repairs and maintenance | Usually deductible if fixing wear and tear |
| Body corporate fees | Usually deductible (excluding capital components) |
| Accounting or tax fees | Usually deductible for rental schedules |
To ensure your tax claims are accurate, remember that your property must be rented or genuinely available for rent throughout the period.
Additionally, be prepared to apportion expenses for any private use and ensure mixed-use loans are clearly split between private and investment portions.
What rental property expenses are claimed over time?
There are some costs you can’t deduct immediately, even if you paid them this year.
| Cost | Why not immediately deductible |
|---|---|
| Renovations | Usually treated as capital improvements |
| Structural improvements | Claimed over time as capital works |
| Depreciating assets | Claimed based on a decline in value |
| Borrowing expenses | Spread over the loan period |
| New fixtures or fittings | Often depreciated |
For example, fixing a broken window may be a repair (immediate deduction), but replacing an entire kitchen is usually a capital improvement that you need to claim over time.
What rental property expenses can’t you claim?
In the meantime, there are several things you can’t deduct when it comes to property investment tax benefits.
You generally cannot claim:
- Principal repayments on your loan
- Stamp duty on purchase
- Conveyancing costs
- Purchase price of the property
- Capital improvements as immediate repairs
- Private-use expenses
- Expenses when the property was not available for rent
- Travel costs for inspecting or maintaining residential rental property (in most cases)
- Costs paid by the tenant
Note that some expenses may not be immediately deductible (e.g., renovations), but you can claim them over time or add them to the cost base of the property for capital gains tax purposes.
Negative gearing vs positive gearing: What’s the difference?
Positive gearing occurs when the rental income from an investment property exceeds the expenses associated with owning it, including loan repayments, maintenance costs, and other fees. This means that you get a net profit, but it can put you in a higher income tax bracket.
Negative gearing, on the other hand, is when the expenses of owning an investment property surpass the rental income it generates. This means you see short-term losses, but you can often deduct these from your taxable income, reducing your tax liability.
The table below sums up the differences:
| Type | What it means | Tax impact | Cash flow | Focus |
|---|---|---|---|---|
| Negative gearing | Expenses exceed income | Loss may reduce taxable income | Investor covers shortfall | Growth |
| Positive gearing | Income exceeds expenses | Income is taxable | Surplus cash flow | Income |
| Neutral gearing | Income ≈ expenses | Minimal tax impact | Break-even | Balance |
Negative gearing is not inherently better. It depends on your income, risk tolerance, loan costs, and long-term strategy.
Are negative gearing rules changing in Australia?
For the 2025–26 income year, negative gearing still applies.
However, recent Federal Budget discussions suggest potential future changes, including:
- Possible limits on negative gearing for some established properties
- Different treatment for new builds
- Potential grandfathering for existing investors
These changes are not fully implemented in the law. Do not assume they affect your current tax return without checking the final rules or seeking advice.
What should property investors check before EOFY?
To ensure your EOFY tax return is accurate and minimises the risk of ATO audits, make sure to review these key areas:
- Confirm total rental income received.
- Separate interest from principal repayments.
- Categorise expenses correctly (immediate vs capital).
- Apportion mixed-use loans.
- Check that the property was genuinely available for rent.
- Review depreciation schedules.
- Ensure records and receipts are complete.
Staying on top of these checks now will save you time and stress when finalising your tax documents.
Common mistakes when calculating negative gearing
Negative gearing can deliver significant tax benefits while helping you enter the investment property market. However, you need to precisely calculate the tax implications of negative gearing and ensure tax compliance throughout the process.
Here are some common mistakes to avoid when calculating negative gearing.
Treating every property cost as immediately deductible
Repairs, maintenance, capital improvements, capital works, and depreciating assets are not treated the same way. You may be able to claim some costs straight away, while others must be claimed over time.
Claiming principal repayments
Only the interest portion of an investment loan is generally deductible. Principal repayments are not claimable.
Claiming travel expenses incorrectly
Travel costs for inspecting, maintaining, or collecting rent from a residential rental property are generally not deductible for individual investors.
Not apportioning mixed-use loans
If part of your loan was used for private purposes, only the investment-related portion of the interest can be claimed.
Claiming expenses when the property was not available for rent
Deductions may need to be reduced if the property was used privately, was not genuinely available for rent, or was rented below-market rates to friends or family.
Not keeping proper records
You need clear records to support rental income, expenses, loan interest, and any apportionment decisions in case of an ATO review.
Do you need an accountant to calculate negative gearing?
Simple property scenarios may be manageable on your own, but an accountant can help if your situation involves multiple properties, mixed-use loans, or capital works.
Lawpath’s tax accountants can help you review your rental income, deductions, and EOFY position so you can claim correctly and avoid common mistakes.
FAQs
Is negative gearing still allowed in Australia in 2026?
Yes. It still applies for the 2025–26 income year, although future policy changes are being discussed.
How do I calculate negative gearing?
Subtract your deductible expenses and loan interest from your rental income to determine your net rental position.
Does negative gearing mean I get all my money back?
No. It reduces your taxable income, not your expenses dollar-for-dollar.
Can I claim my mortgage repayments?
Only the interest portion is generally deductible, not the principal.
Can I claim travel to inspect my rental property?
In most cases, individual investors cannot claim travel expenses for residential rental properties.
Are renovations tax-deductible?
Usually not immediately. Many renovations are treated as capital works and claimed over time.
What records do I need?
Keep records of rental income, expenses, loan interest, and any apportionment calculations.
Managing your property income correctly
To accurately calculate negative gearing in Australia, you need to thoroughly understand which expenses are claimable and keep detailed records. While it can offer significant tax benefits and potential long-term gains, it’s crucial to consider your overall financial situation and investment goals. Remember, property investment strategies should align with your risk tolerance and financial capacity.
For personalised advice tailored to your specific circumstances, consider consulting with a qualified financial advisor or tax professional. They can help you navigate the complexities of negative gearing. Meanwhile, Lawpath can help you manage your accounting while you remain compliant with Australia’s tax laws.
