Updated 8 September 2026
What an investment property actually costs you after tax, for 2026-27. Negative gearing reduces your tax; it does not make the loss free.
Rates, insurance, strata, agent fees, repairs, land tax.
Non-cash. Needs a quantity surveyor's schedule.
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A property is negatively geared when the deductible costs of holding it exceed the rent it produces. That loss is offset against your other income, which reduces your tax, and the reduction comes back as a refund or a lower instalment.
So there are two numbers, and only one of them matters. The paper loss is rent less all deductions including depreciation. The real cost is the cash actually leaving your account, which is the paper loss less the tax saved and less any deduction that did not cost you cash this year. Depreciation is the main one that did not.
Worked example. Rent of $30,000, interest of $34,000, other cash costs of $7,000 and depreciation of $6,000 gives a $17,000 tax loss. On other income of $150,000 that deduction is worth $6,490, not a flat 39% of it, because the first part comes off at 39% and the rest drops into the 32% bracket below $135,000. The cash shortfall before tax was $11,000, so after the refund the property costs $4,510 a year, about $87 a week, to hold.
The higher your marginal rate, the more of the loss the tax system absorbs. That is why the same property costs a top-rate earner substantially less to hold than someone on 30%, and why the calculator asks for your other income rather than assuming a rate.
Claimable in the year: loan interest on the portion used to acquire or improve the property, council and water rates, land tax, insurance, agent fees and letting costs, repairs and maintenance, strata levies, cleaning, pest control, gardening, and the accountant's fee for the rental schedule.
Not claimable in the year: the principal component of the loan, the purchase price itself, stamp duty on the transfer, initial repairs to fix defects that existed at purchase, and improvements. Those last three sit in the cost base and come off the capital gain at sale instead.
The line between a repair and an improvement is where most rental schedules go wrong. Replacing a section of damaged fence is a repair. Replacing the whole fence with a better one is an improvement and gets depreciated. Anything done before the property was first rented is an initial repair, capital, whatever it looked like.
Two rules catch people out. Travel to inspect a residential rental is not deductible for individuals, whatever the reason for the trip. And where a property is genuinely available for rent for only part of the year, or is used privately for part of it, the deductions are apportioned.
There are two kinds, and they behave differently.
Capital works, the building itself, is generally 2.5% of the construction cost a year for 40 years where construction began after 15 September 1987. On a $400,000 build that is $10,000 a year, and it needs no cash outlay at all.
Plant and equipment, the removable assets, is where the 2017 rules bite. For a second-hand residential property acquired after 9 May 2017 you generally cannot claim depreciation on the existing plant and equipment. New property and assets you buy yourself are unaffected.
A quantity surveyor's depreciation schedule is the document that unlocks both, and for anything built or substantially renovated in the last few decades it usually pays for itself several times in the first year. It is the single most common thing missing from a rental schedule we take over.
Negative gearing is not a strategy. It is a description of a cash flow, and losing money is only sensible if the capital growth outruns the loss.
Run the arithmetic honestly. If the property costs $4,400 a year after tax and you hold it for ten years, it has to grow by more than $44,000 plus your buying and selling costs plus the CGT before you are in front. On a $700,000 property that is a low bar in a good decade and an impossible one in a flat market.
Two things change the answer more than the tax rate. Interest rates, because interest is usually the largest deduction and the largest cash cost at the same time. And whether the loss is real or accounting, because a property that is neutral on cash and negative only because of depreciation is a materially different proposition to one bleeding $15,000 a year.
Every year of deductions is settled up at sale. The gain is the sale proceeds less the cost base, and the cost base includes the purchase price, stamp duty, legal fees and any capital improvements, reduced by the capital works deduction you have claimed along the way. That reduction is the part people forget: claiming capital works lowers the cost base and increases the gain later.
Hold the property for more than twelve months and an individual gets the 50% CGT discount on the gain. On a $300,000 gain that leaves $150,000 assessable, taxed at your marginal rate in the year of the contract, not the settlement. Adding $150,000 to an ordinary salary usually pushes most of it into the top bracket, so the tax on a $300,000 gain is commonly in the region of $70,000. Timing the contract date across income years is one of the few levers that still exists.
Rates used: 2026-27 individual rates of nil to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus the 2% Medicare levy. Capital works 2.5% a year where construction began after 15 September 1987. CGT discount 50% for individuals holding more than twelve months. Verified 8 September 2026 against the ATO. Excludes the Medicare levy surcharge, HELP repayments and land tax, which is a state charge.
The difference between a rental schedule that is merely correct and one that is complete is usually a depreciation schedule and a proper split of repairs against improvements. Both are worth more than the tax rate you are on.
Rent received less all deductible costs, including loan interest, rates, insurance, agent fees, repairs and depreciation. If the result is a loss, that loss reduces your other taxable income. Multiply the loss by your marginal rate plus the Medicare levy to see the tax saved, then subtract that from your actual cash shortfall to get the real holding cost.
Only if capital growth exceeds the after-tax cost of holding, plus your buying and selling costs, plus the CGT on exit. The tax refund never makes a loss profitable, it only makes it cheaper. A property that is negative on paper because of depreciation but neutral on cash is a much better position than one that is genuinely bleeding cash each month.
Yes. Rental losses can still be offset against other income for individuals. What changed in 2017 was narrower: travel to inspect a residential rental is no longer deductible, and depreciation on second-hand plant and equipment in a residential property acquired after 9 May 2017 is not claimable. Capital works on the building are unaffected.
An individual holding more than twelve months applies the 50% discount, so $150,000 is assessable and taxed at your marginal rate in the year of the contract. Added on top of an ordinary salary that usually lands mostly in the top bracket, so the tax is often around $70,000. Splitting ownership, timing the contract date, and carried-forward capital losses all move it.
The excess becomes a carried-forward tax loss and reduces your taxable income in later years. It is not refunded and it does not expire, but it does mean the refund you were counting on this year may not arrive.
The loss follows legal ownership, so a property in the higher earner's name produces a larger refund while it is negatively geared. The same split applies to the capital gain at sale, when the higher earner pays more. Which way round suits depends on how long you intend to hold and what each person's income is likely to be at the exit, and it is very difficult to change afterwards without triggering duty and CGT.
General information only, prepared without regard to your objectives, financial situation or needs. It is not financial product or taxation advice and should not be relied on as such. Liability limited by a scheme approved under Professional Standards Legislation.
