Quick answer
If rental deductions (interest, rates, repairs, depreciation) exceed the rent, the loss reduces your other taxable income in 2026–27: a $21,800 loss saves about $6,976 for someone on $110,000. From 1 July 2027 this only applies to new builds, or to properties you already held at 7:30pm on 12 May 2026.
How negative gearing works
A property is negatively geared when the deductible costs, mostly loan interest, are more than the rent. The loss comes off your other income, such as salary, so you pay less tax. The saving is the loss multiplied by your marginal rate plus the 2% Medicare levy. In 2026–27 that can be as high as 47%.
Take the calculator's starting figures: rent of $31,200, interest of $36,000, other costs of $9,000 and depreciation of $8,000. The property makes a tax loss of $21,800. On a $110,000 salary the marginal rate with Medicare is 32%, so tax falls by about $6,976. The cash picture is different. Rent less interest and costs is $-13,800 a year, and after the tax saving the owner is still about $6,824 out of pocket. Negative gearing reduces the loss. It does not remove it. The bet is on capital growth.
What you can claim on a rental property
| Cost | Deduction | Notes |
|---|---|---|
| Loan interest | Yes, in the year paid | Only the part of the loan used for the property |
| Council rates, water, land tax, strata fees, insurance, agent fees | Yes, in the year paid | |
| Repairs and maintenance | Yes, in the year paid | Fixing damage or wear. Initial repairs on a newly bought place are capital. |
| Improvements and renovations | Over time | Capital works at 2.5% a year for 40 years |
| Building cost (capital works) | 2.5% a year | Residential construction after 15 September 1987 |
| Plant and equipment (oven, carpet, blinds, hot water) | Depreciation over effective life | Only for new assets. Second-hand assets in a residential property bought after 9 May 2017 can't be depreciated; the cost is added to the cost base instead. |
Depreciation is a deduction without a cash payment, so the calculator counts it for tax but leaves it out of cash flow. A quantity surveyor's depreciation schedule is the usual way to work out the figure.
The negative gearing change from 1 July 2027
This is now law. From 1 July 2027, negative gearing on residential property is limited to new builds. Properties held at 7:30pm AEST on 12 May 2026 are exempt, so if you owned your rental before then, nothing changes for it. If you bought an established home after that time, a loss can still reduce your other income in 2026–27, but from 2027–28 it can't be set against salary. Tick the box in the calculator to see the note. The same reform replaces the 50% CGT discount for gains after 1 July 2027; the capital gains tax calculator explains that part.
What the calculator leaves out
It assumes one owner and no other deductions. Joint owners split income and costs by their legal ownership share, not by who pays. It ignores periods when the property was not available for rent, borrowing costs spread over 5 years, and interest on a loan that was redrawn for private use. Holiday homes and short-stay listings have their own apportionment rules, covered in our Airbnb tax guide.
Our rental property tax guide lists the deductions in more detail. TXAS prepares rental schedules every year for Melbourne landlords and can look at your loan structure through tax planning before you buy or refinance.
Common questions
How much tax does negative gearing save?
The rental loss times your marginal rate plus Medicare levy. A $21,800 loss for someone earning $110,000 saves about $6,976 in 2026–27, because their rate is 32%.
Is negative gearing being abolished in Australia?
Not for everyone. From 1 July 2027 it is limited to new builds, and properties held at 7:30pm AEST on 12 May 2026 are exempt. An established home bought after that time can't use a loss against salary from 2027–28.
Can I claim depreciation on a second-hand rental property?
You can claim capital works at 2.5% a year on the building. Plant and equipment that was already in a residential property you bought after 9 May 2017 can't be depreciated, but new items you install can.
What is the difference between a repair and an improvement?
A repair fixes damage or wear and is deductible straight away. An improvement makes the property better than it was, such as a new kitchen, and is claimed over time as capital works at 2.5% a year.
Is a negatively geared property worth it?
Only if the capital growth makes up for the cash you put in. In the calculator's default example the owner is still about $6,824 a year out of pocket after the tax saving.
Sources: ATO: reforming negative gearing and capital gains tax · ATO: individual income tax rates