Negative Gearing Australia 2026: Calculator + 3 Worked Examples
How negative gearing actually works at the 2025-26 ATO brackets. Three real worked examples: Bondi 1-bed, Logan house, Cairns townhouse. Plus the three traps (CGT, principal, depreciation) most articles skip.
Negative gearing is one of those tax concepts that gets debated endlessly in Federal politics and explained badly almost everywhere else. The actual mechanic is simple: if your investment property costs more to hold than it earns in rent, you can deduct the loss against your other taxable income. The Federal Government effectively funds part of the holding cost via reduced tax.
This guide explains how it works in practice for the 2025–26 financial year, walks through the math at three real Australian price points, and is honest about when negative gearing is a strategy and when it's a polite name for losing money. ATO bracket rates and thresholds used here are current to FY2025–26.
The mechanic in 30 seconds
Investment property is treated like a small business for tax purposes. Rental income is assessable income; deductible expenses are subtracted. If expenses exceed income, the loss reduces yourother taxable income (your salary), which means a smaller tax bill at the end of the year.
Deductible expenses include: loan interest (the big one), council rates, water rates, body corporate fees, property management fees, insurance, repairs and maintenance, depreciation on building (2.5% p.a. on construction cost over 40 years for buildings completed post-1987), and depreciation on fixtures and fittings.
2025–26 ATO marginal tax brackets
| Taxable income | Marginal rate | Refund per $1k loss |
|---|---|---|
| $0 – $18,200 | 0% (tax-free) | $0 |
| $18,201 – $45,000 | 16% | $160 |
| $45,001 – $135,000 | 30% | $300 |
| $135,001 – $190,000 | 37% | $370 |
| $190,001+ | 45% | $450 |
The Stage 3 tax cuts (effective 1 July 2024) lowered the 32.5% bracket to 30% and raised the 37% threshold from $120k to $135k. This made negative gearing slightly less effective for middle-income earners (lower refund per dollar of loss) but mostly didn't change the top-end math.
Example 1 — Bondi 1-bed apartment
High-end harbourside cashflow disaster, used for capital growth play.
The numbers
- Purchase: $850,000 1-bed apartment in 2026 Bondi
- Loan: $680,000 at 6.05% interest-only for first 5 years
- Annual interest: $41,140
- Annual rent: $499/wk × 52 = $25,948
- Body corp + rates + insurance: ~$5,800
- Property management (7%): $1,816
- Depreciation (apartment built 2010): ~$5,500
- Repairs/vacancy buffer: $1,500
The tax position
On a $180,000 salary (37% MTR), the $29,808 loss reduces taxable income to $150,192 and produces a tax refund of $11,029.
Net out-of-pocket per year: $29,808 − $11,029 = $18,779. That's the holding cost the investor wears in cash. The bet is that capital growth on $850k recovers this. Sydney inner-east has averaged ~5.5% p.a. over 20 years = $46,750/yr. Even half that growth leaves the investor ahead by roughly $4,500/year in net wealth.
Example 2 — Logan house
The opposite end of the spectrum: cashflow-positive house in QLD outer suburbs.
The numbers
- Purchase: $560,000 4-bed house in 4133 Logan area
- Loan: $448,000 at 6.05% P&I, 30-year
- Annual interest portion (Year 1): ~$27,030
- Annual rent: $499/wk × 52 = $25,948
- Council rates + insurance: ~$3,800
- Property management (8%): $2,076
- Depreciation (house built 2008): ~$3,200
- Repairs/vacancy buffer: $1,800
The tax position
On a $95,000 salary (30% MTR), the $11,958 loss produces a tax refund of $3,587. Net out-of-pocket: $8,371/year. Much smaller because the property is closer to cashflow-neutral. Property purchased for capital growth + tax effectiveness, but the holding cost is more bearable than Bondi.
Example 3 — Cairns townhouse, cashflow-positive
The unicorn case: a property where rent actually exceeds expenses.
The numbers
- Purchase: $480,000 townhouse in 4870 Cairns
- Loan: $384,000 at 6.05% interest-only
- Annual interest: $23,232
- Annual rent: $399/wk × 52 = $20,748
- Body corp + rates + insurance: ~$4,200
- Property management (8%): $1,660
- Depreciation (townhouse 2015): ~$4,800
The tax position
Total expenses: $33,892. Rent: $20,748. Loss on paper: $13,144. But depreciation is a non-cash expense — meaning the actual cash-flow position is: rent $20,748 − cash expenses $29,092 = −$8,344 cash-out, but the tax loss is $13,144 (because depreciation adds to it on paper without affecting cash).
At 37% MTR, the $13,144 paper loss returns $4,863. Net out-of-pocket cash: $8,344 − $4,863 = $3,481/year. At a higher cash yield with depreciation included, this is the closest thing to a property paying for itself in 2026 — particularly given Cairns Investment Score of 53 (Good) and historical 4–5% p.a. growth.
Trap 1 — Capital gains tax on exit
Negative gearing reduces income tax during ownership but doesn't eliminate capital gains tax (CGT) on sale. The CGT discount halves the gain after 12 months held — but the post-discount gain is still taxed at your marginal rate.
Worked: Bondi unit purchased $850k, sold 7 years later at $1.2M. Gross gain $350k. Less ~$60k selling costs (agent + marketing + conveyancing) = $290k. 50% CGT discount applies = $145k taxable. At 45% MTR (since the gain pushes into top bracket) = $65,250 tax payable. The 7-year accumulated negative gearing refunds (~$11,029 × 7 = $77,203) almost exactly cover the CGT bill, which is the standard tax-effective property strategy.
Trap 2 — The principal problem
Negative gearing only deducts interest, not principal. On a P&I loan, more of each payment becomes principal over time (and thus non-deductible). Year 1 of a 30-year loan: ~85% interest. Year 15: ~50% interest. Year 30: ~5% interest.
This is why investor loans are often interest-only for 5 years — to keep the deduction maximal. Australian banks have tightened interest-only criteria significantly post-APRA, so this isn't always available, but ask your broker.
Trap 3 — Depreciation rules changed in 2017
Pre-2017, you could depreciate second-hand fixtures and fittings (carpet, blinds, dishwasher etc.) in a property you bought. From 9 May 2017, this stopped — you can only depreciate items you've installed yourself, plus the building structure depreciation if construction was post-1987.
For a 2026 buyer of an existing 2015 townhouse, this means deductible depreciation is ~50% lower than what pre-2017 articles and tax depreciation schedules will tell you. Always get a fresh depreciation schedule from a quantity surveyor on a property you actually purchase.
When negative gearing actually makes sense
- Your MTR is 37% or 45%, AND
- You expect >3% p.a. capital growth, AND
- You can comfortably wear the cash holding cost for 7+ years, AND
- You have no better use for the deposit capital (equity ETF returning ~9% historically, etc.)
If any of these fail, the strategy gets weaker. If your MTR is 30% or below, you're subsidising the property loss at a worse rate than the Government, which usually breaks the math. If you don't believe in 3%+ growth in your chosen postcode, you're paying to lose money. If you're going to need the cash within 5 years, the transaction costs (stamp duty + agent + CGT) will eat the gain.
How to check the math for your specific postcode
Every PropPulse Tier 1 postcode report includes a Year-1 negative gearing saving estimate — calculated for the median-priced property in that postcode at current rates and a 37% MTR baseline. This is useful for narrowing down 3–4 candidate postcodes. For your actual purchase, take those numbers to a tax adviser who can model your specific salary and asset position.
For finding postcodes where the negative gearing math actually works (decent yield + reasonable growth + within budget), see our cashflow-positive investment guide which is the opposite framing — find properties where you're not relying on a tax refund to make the deal work.
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