What is negative gearing?

Negative gearing applies when an investment property runs at an annual loss — meaning interest on the loan plus rates, insurance, depreciation, property management, repairs and maintenance exceed the rent received. Under Australian tax law, this loss can be claimed against the investor's other taxable income (salary, business income, other investments).

Practical impact: a $500,000 investment property with $35,000/year in rent and $48,000/year in costs runs at a $13,000 loss. For an investor on the top marginal tax bracket (47% incl. Medicare), that $13,000 loss reduces their tax bill by ~$6,100 — recovering roughly half the cash loss through tax savings.

Negative gearing is a strategy bet on capital growth — investors accept a short-term cashflow loss in exchange for expected long-term price appreciation. It only stacks up if the property grows in value enough to outweigh the cumulative after-tax losses. Cash-flow-positive ('positively geared') investments don't generate the deduction but don't bleed cash either.

negative gearing tax deduction · negatively geared property