When your investment property costs more in interest and costs than it earns in rent, you are negatively geared. You can use this loss to reduce your tax bill.
This article was fact-checked and reviewed by Lloyd Edge, an accredited buyer's agent, licensed real estate agent and the author of Positively Geared. Content has been updated for 2025.
Negative gearing is where you borrow money to invest (usually in an investment property), and the income from the investment (rent) is less than what the investment costs you. You're therefore making a loss every week that you own the property, as the interest and other related expenses are more than the rent.
Although you're making a loss on your investment, you can off-set this loss against your taxable income and pay less tax.
While common for property investing, negative gearing can also be used for other financial investments such as shares and bonds. Between negative gearing and the CGT discount, it's cost the federal government around $20 billion per year.
What is negative gearing in simple terms?
You borrow money to buy an investment property, renovate the property and then cover a range of maintenance costs.
Every month, you pay interest on the home loan, along with other costs like property management fees, insurance and repairs.
The Australian Tax Office (ATO) treats expenses incurred by property investors as tax deductible expenses, much like other business costs, and if these total costs are more than the amount you receive in rent, you're negatively geared. For instance...
Ahmed buys a $750,000 investment property with a deposit of $100,000.
He gets a loan for $600,000 from a lender.
He collects $500 per week in rent, or $26,000 per year.
The loan is an interest-only mortgage with a rate of 6.2%. The initial interest charges are $3,000 per month, or $36,000 per year.
In the first year of owning the property, Ahmed spends $1,000 on maintenance, $2,000 in strata fees and $2,000 in property management fees, plus $1,000 on insurance.
Together, these costs plus interest charges total $42,000. This is $16,000 more than he collects in rent.
Result: Ahmed is negatively geared by $16,000 a year and can deduct this amount from his taxable income. This means he'll get a tax refund. The amount depends on how much tax he pays.
How do I calculate my negative gearing loss?
To work out your negative gearing loss, follow these steps:
Add up your property income. The rent you collect from the property x 52 weeks, if it was rented out the entire year.
Add up your property expenses. This includes interest payments on the mortgage (but not payments towards the principal), maintenance costs and property management fees. Remember that PMs usually charge one full week's rent, plus GST, as the beginning of each new tenancy.
Deduct depreciation. Depreciation is the loss related to the decrease in value of the building and certain assets like carpets, drapes, hardwood floors and appliances. This is an "on paper" cost – you might be able to deduct $6,000 in depreciation, but it doesn't actually cost you $6,000. You can add this amount to your "costs" at tax time. Any amounts you depreciate are required to be factored in when you eventually sell.
A good accountant with property investing experience can help you manage your property tax obligations. You can also pay a quantity surveyor to set up a depreciation schedule to figure out the amount you can deduct for depreciation each year.
What investment expenses can you claim as a tax deduction?
Revenue deductions. You can claim revenue deductions such as the interest on the money you borrow (but you can not claim any amounts you pay towards the principal of the mortgage) as well as ongoing maintenance fees.
Capital items. Large items such as a plumbed-in dishwasher or carpets in a rental property are subject to depreciation over time and can be claimed over several years.
Building allowances. Generally, you can claim for building allowances such as for depreciation over time or for building works.
You can visit the ATO website for a comprehensive list of deductible expenses. Note that stamp duty is not immediately tax deductible, but you can add it back the cost base when you sell the property. For instance, if your stamp duty is $22,000 and you paid $500,000 for the property, when you sell you can declare a total of $522,000 when calculating your capital gains tax.
Additional deductible expenses
Body corporate fees
Costs associated with borrowing, like conveyancing fees
The cost of advertising for tenants
Insurance
Fees and commissions charged by property agents
Land tax
Repairs and maintenance costs
Interest you are charged on your loans and other bank fees
Cleaning services
Gardening and lawn mowing costs
Pest control expenses
Council and water rates
Capital works costs
Depreciation on plant and equipment
Our expert says
"I've owned investment properties and I've benefited from negative gearing along the way to help me cover the costs each year. It gave me a nice tax return at the end of each year, which I would stash in an emergency account to help deal with property emergencies – of which there were plenty! It's really important that you always have at least a few thousand dollars set aside to deal with unexpected expenses as a landlord, and negative gearing helped me with some tax benefits that allowed me to always keep this emergency account topped up."
What is the problem with negative gearing – are there risks?
Just like any investment strategy, negative gearing has risks. Borrowing money to fund an investment is risky in itself, and you should be fully aware of what negative gearing involves before you pursue this strategy. Consider the following:
What if your income changes and you can no longer pay for the shortfall each month?
What if you can't find a tenant and the property is left vacant for an extended period; how will you cover the costs of owning the property?
What if the property market takes a dive and you don't achieve the capital gain you had planned?
What if tax laws change and negative gearing is no longer as financially beneficial for your unique situation?
There are steps you can take to minimise the risks associated with negative gearing. The best way to minimise your investment risk is to do plenty of research when choosing your investment property and select a property that is likely to rise in value.
Make sure your income is high enough to cover interest repayments and maintain your investment property, even in less-than-ideal circumstances. Speak to the experts such as a financial planner, a tax accountant and a mortgage broker to ensure that you make a sound financial decision.
Who really benefits from negative gearing?
Negative gearing has been a popular strategy for Australian investors for many years, but it's also a source of controversy. The real beneficiaries of negative gearing depend on your point of view.
The following are some of the arguments against negative gearing:
It encourages property investment and reduces housing supply to home buyers (and increases prices).
It benefits asset-rich investors over homebuyers, helping the rich get richer.
It encourages risky investment.
The following are some of the arguments in favour of negative gearing:
Majority of property investors are regular Australians earning moderate incomes.
It encourages investment in property and spurs housing construction.
Removing it could raise rents (by raising investors' costs) and cause a rental crisis.
It's a complicated topic, and experts commenting on negative gearing in the media often do so with the interests of a specific group in mind. The whole thing is further complicated by the fact that many Australians are property investors and many are both renters and investors.
More property investing guides and advice
Property investing tax strategies. Negative gearing is a strategy property investors use to offset their short-term losses in the pursuit of long-term capital gains. This requires the ability to absorb some cash-flow losses, but a savvy investor can structure their property investment in such a way as to maximise its tax effectiveness.
Capital gains tax. Another important piece of the negative gearing puzzle is the capital gains tax (CGT) concession. This allows investors who have held their property for at least 12 months an exemption on 50% of their CGT bill. Coupled with negative gearing, the CGT discount makes property an extremely tax-effective investment strategy. Learn more about minimising CGT.
Getting your foot on the property investment ladder. While property might be a tax-effective and attractive asset class for investment, first-time investors can feel intimidated by the perceived difficulty of buying their first property. Before you wade into the world of property investment, there are some important investing strategies to keep in mind.
Richard Whitten is Finder’s Money Editor, with over seven years of experience in home loans, property and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Graduate Certificate in Communications from Deakin University. See full bio
Richard's expertise
Richard has written 601 Finder guides across topics including:
Hi there,
new to renting my home and trying to understand all areas of this.
In layman’s terms around the tax’s – should the rent l charge be higher or lower than my mortgage plus expenses of the property, to ensure l get a return a tax time please?
Finder
SarahMarch 25, 2024Finder
Hi Kellie,
There’s a range of factors that can influence your tax return and it’s not as simple as the rent you charge vs the income, because it depends on the value of your mortgage, your deductions and depreciation.
Generally, you will get a tax return if your expenses outweigh your income, but that’s not a good reason to charge less rent as you’ll end up even more out of pocket.
We would strongly recommend you get advice from an accountant with expertise in property investing to give you some personalised advice; there are things like depreciation and negative gearing that can significantly impact your tax position.
Hope this helps!
RaghuApril 26, 2016
Hi,
In the situation when I can’t find a tenant for my investment property and the property is left vacant for an extended period, Are the repayments made during this period tax deductible?
Thanks,
Raghu
BelindaApril 26, 2016
Hi Raghu,
Thanks for reaching out.
You can still claim expenses for your investment property, such as the interest on loans, as long as the property is genuinely available for rent.
According to the Australian Taxation Office (ATO), if a property is genuinely available for rent, it must be advertised to potential tenants and tenants must be reasonably likely to rent the property. For more details, please speak with a tax accountant or visit the ATO’s rental property expenses to claim guide.
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Hi there,
new to renting my home and trying to understand all areas of this.
In layman’s terms around the tax’s – should the rent l charge be higher or lower than my mortgage plus expenses of the property, to ensure l get a return a tax time please?
Hi Kellie,
There’s a range of factors that can influence your tax return and it’s not as simple as the rent you charge vs the income, because it depends on the value of your mortgage, your deductions and depreciation.
Generally, you will get a tax return if your expenses outweigh your income, but that’s not a good reason to charge less rent as you’ll end up even more out of pocket.
We would strongly recommend you get advice from an accountant with expertise in property investing to give you some personalised advice; there are things like depreciation and negative gearing that can significantly impact your tax position.
Hope this helps!
Hi,
In the situation when I can’t find a tenant for my investment property and the property is left vacant for an extended period, Are the repayments made during this period tax deductible?
Thanks,
Raghu
Hi Raghu,
Thanks for reaching out.
You can still claim expenses for your investment property, such as the interest on loans, as long as the property is genuinely available for rent.
According to the Australian Taxation Office (ATO), if a property is genuinely available for rent, it must be advertised to potential tenants and tenants must be reasonably likely to rent the property. For more details, please speak with a tax accountant or visit the ATO’s rental property expenses to claim guide.
All the best,
Belinda