What is negative gearing in simple terms?

Negative gearing is when the deductible costs of owning a rental property (loan interest plus other expenses) are more than the rent it earns, producing a net rental loss. You can deduct that loss from your other income, such as your salary, which reduces your tax for the year.

How does negative gearing reduce my tax?

The net rental loss is subtracted from your other assessable income, lowering your taxable income and therefore the tax you pay at your marginal rate. For example, an $8,000 rental loss reduces a $120,000 income to $112,000 of taxable income.

What's the difference between negative and positive gearing?

Negatively geared means expenses exceed rental income (a loss that reduces your other taxable income). Positively geared means rental income exceeds expenses (a profit that's added to your assessable income). Neutrally geared means they're about equal.

Is negatively gearing a property a good idea?

It depends entirely on your circumstances — income, cash flow, risk tolerance and the property's growth prospects. Negative gearing reduces tax but you're still making a real cash loss each year, relying on capital growth to come out ahead. It's a decision to make with a licensed financial adviser, not a guaranteed win.

Does negative gearing mean I make money?

No. It means you make a loss on the property's running costs, and that loss reduces your tax. A tax deduction is not a profit — you're out of pocket on the shortfall and depending on the property rising in value over time.

Can I deduct a rental loss against my salary?

Yes. A net rental loss can generally be deducted against your other assessable income, including salary and wages, in the same income year. This is the mechanism behind negative gearing.

How does negative gearing affect capital gains tax?

They're two parts of the same strategy. You claim rental losses each year against your income, then pay CGT on any capital gain when you sell. If you held the property over 12 months as an Australian resident, the 50% CGT discount generally applies to the gain. See our capital gains tax guide.

Could negative gearing rules change?

Negative gearing is periodically debated in Australian politics and proposals to change it surface from time to time. This guide reflects the current rules. Because tax settings can change, factor that into long-term decisions and rely on current advice.

Negative Gearing Explained: How It Works in Australia (2025

General information only. This article explains how negative gearing works in Australia. It is not tax, legal or financial advice, and it is not a recommendation to gear an investment in any particular way. Whether any approach suits you depends on your circumstances — speak with a registered tax agent or licensed financial adviser. Based on Australian Taxation Office (ATO) guidance current at the time of writing.

Negative gearing is one of the most talked-about features of Australian property investing, and one of the most misunderstood. At its core it's simple: it just means your rental property costs more to hold than it earns, and the resulting loss reduces the tax you pay on your other income. This guide explains exactly how it works, the difference between negative, neutral and positive gearing, and the catch most headlines leave out — that a tax saving is not the same as making money. For the deductions that drive the numbers, see Rental Property Tax Deductions: What You Can Claim in Australia.

What negative gearing actually means

A rental property is negatively geared when the deductible cost of owning it — loan interest plus rates, insurance, repairs, depreciation and other expenses — is more than the rent it earns. That shortfall is a net rental loss.

Here's the part that makes it a "thing": under ordinary Australian tax rules, you can deduct that net rental loss from your other assessable income, such as your salary or wages. That lowers your total taxable income, and therefore your tax bill, for the year. There's no special scheme or election involved — it's simply the result of normal deduction rules when expenses exceed rental income.

Negative vs neutral vs positive gearing

"Gearing" just means borrowing to invest. The three outcomes:

Negatively geared — rental expenses are more than rental income. You make a rental loss, which reduces your other taxable income. You're funding the shortfall out of pocket, betting on capital growth.

Neutrally geared — rental income roughly equals expenses. No loss, no profit.

Positively geared — rental income is more than expenses. You make a rental profit, which is assessable income and adds to your tax bill — but you're cash-flow positive.

None of these is automatically "better". Negative gearing trades cash flow now (and a tax saving) for hoped-for capital growth later; positive gearing gives you income now but a larger tax bill.

A simple worked example

Sam earns an $120,000 salary. His rental property earns $25,000 in rent for the year, and his deductible expenses (interest, rates, insurance, repairs, depreciation) total $33,000.

Net rental loss: $25,000 − $33,000 = −$8,000

Sam deducts that $8,000 from his other income: taxable income drops from $120,000 to $112,000.

At his marginal rate, the $8,000 deduction saves him roughly a few thousand dollars in tax.

But note: Sam is still $8,000 out of pocket on the property for the year. The tax saving softens the loss — it doesn't erase it. (Figures are illustrative; your marginal rate and expenses will differ.)

The catch the headlines skip

Negative gearing reduces your tax, but a tax deduction is not a profit. A negatively geared investor is, by definition, losing money on the property's running costs each year and relying on the property growing in value by more than those accumulated losses. If the property doesn't appreciate, the strategy can leave you worse off, tax saving and all.

This is why negative gearing only makes sense as part of a broader plan that considers capital growth, your cash flow, your income level and your risk tolerance — the kind of thing to weigh with a licensed adviser, not to adopt because it sounds clever.

How it interacts with capital gains tax

The two halves of a geared property strategy are the yearly rental loss and the eventual sale. When you sell, capital gains tax applies to any gain. Two connections worth knowing:

Investors who negatively gear are typically counting on a capital gain at sale to outweigh the holding losses.

If you held the property over 12 months as an Australian resident, the 50% CGT discount generally applies — so the eventual gain is concessionally taxed, while the annual losses reduced income taxed at your full marginal rate. That asymmetry is a big part of why the strategy is popular (and why it's politically debated).

A note on the policy debate

Negative gearing is regularly debated in Australian politics, with periodic proposals to change or limit it. This guide describes the rules as they currently stand; it doesn't take a position on whether they should change. If you're making a long-term investment decision, factor in that tax settings can change over time, and get current advice.

Where record-keeping comes in

Whether a property is negatively or positively geared is simply the result of totting up the year's income against its deductible expenses — accurately. Miss deductions and you understate the loss; misclassify capital items as expenses and you overstate it. ledger.rent keeps your rental income and categorised expenses (including depreciation and capital works) in one place per property and financial year, so your geared position is calculated from complete records and your accountant has what they need. It doesn't give advice — it gets the numbers right.

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Last updated: May 2026. Based on ATO guidance current at the time of writing (ATO "Negative gearing"). Tax rules and policy can change; confirm the current position with a registered tax agent or licensed financial adviser.

Negative Gearing Explained