What Is Negative Gearing? Explained for Property Investors

📉 What negative gearing actually means🔗

"Gearing" just means borrowing to invest. A property is negatively geared when the rental income it earns is less than the deductible costs of holding it, mainly loan interest, but also things like property management fees, council rates, and depreciation. The result is a net rental loss for that financial year.

Under the ATO's rules, that loss isn't just absorbed, it can be deducted against your other assessable income, salary, wages, or business income, reducing your overall taxable income for the year.

🧮 A worked example🔗

Swap in your own rent, loan interest and expenses with our negative gearing calculator to see your actual annual loss and the real tax saving at your marginal rate, rather than this worked example's numbers.

🤔 Why investors actually do it🔗

Nobody sets out to lose money every year forever. The strategy only makes sense if the investor expects the property's value to grow enough over time that the eventual capital gain, when sold, more than makes up for the losses accumulated along the way. It's a bet on long-term capital growth, financed partly by a tax-reduced annual loss in the meantime.

That means negative gearing isn't a strategy in itself, it's a side effect of how a leveraged property purchase is often structured in its early years, particularly while the loan balance and interest costs are highest relative to rental income. Many investors get there by using equity in an existing property rather than saving a deposit from scratch.

📊 How common it actually is, in real numbers🔗

🎯 The essential: Around 1.1 million Australians are running a negatively geared property, collectively claiming over $54 billion in deductions in a single year.

This isn't a niche or marginal tax position, ATO taxation statistics show just over 2.26 million individuals reported an interest in a rental property in the most recent full year of data, and close to half of them, around 1.1 million people, were running at a net rental loss, meaning they were negatively geared. Collectively, those investors claimed roughly $54.5 billion in rental deductions that year, interest, maintenance, council rates and depreciation combined.

That $54.5 billion figure is total deductions claimed, not the actual cost to the federal budget, the real reduction in tax revenue is smaller, since it depends on each individual's own marginal tax rate applied to their share of that loss, not the full deduction amount. Still, the scale explains why negative gearing periodically becomes a live political issue, it's a structural feature of how well over a million Australians hold investment property, not a rare tax-planning trick used by a small handful of investors.

⚠️ The risk that gets glossed over🔗

The whole strategy depends on an assumption that isn't guaranteed: that the property's value will rise enough, eventually, to offset years of real, out-of-pocket losses. If growth is slower than expected, or the property is sold during a downturn, an investor can end up having funded years of losses without the capital gain ever fully making up for them.

When that eventual sale does happen, the capital gains tax owed on the profit is the other half of the equation worth planning for, not just the annual deduction.

⚖️ Positive vs negative gearing🔗

❓ Frequently asked questions🔗