Property

Negative Gearing Explained: What It Actually Means for You

The tax strategy that divides Australia, explained without the politics.

Published by NoBS Finance · 15 June 2026 · 7 min read

Key Takeaways

Negative gearing means your property costs more to hold than it earns in rent, and the loss is tax-deductible against other income.
It only makes sense if you expect capital growth to exceed your after-tax losses, which is a big bet on rising prices.
Australia is one of the few countries that allows property losses to be deducted against wages.
The tax benefit is largest for high-income earners in higher marginal tax brackets.
Negative gearing is a tax strategy, not an investment strategy. The property still needs to make sense without it.

Negative Gearing, Without the Politics

Negative gearing is the most misunderstood financial concept in Australia. Let's strip away the politics and look at what it actually does to your wallet.

What It Is

When you borrow money to buy an investment and the income (rent) does not cover the costs (interest, rates, maintenance, strata), you make a loss. That loss reduces your taxable income. The taxman effectively subsidises part of your loss.

The Example

Hypothetical example: You buy a $700,000 unit. Rent is $500 per week ($26,000 per year). Costs are $48,000 per year (interest, rates, insurance, strata, management).

Loss: $22,000 per year
Tax saving (at 30% marginal rate, not including Medicare levy): $6,600
Real cost to you: $15,400 per year

You are betting the property will grow in value by more than $15,400 per year. If it does, you come out ahead. If it does not, you are losing money. This is a hypothetical example for illustration only. Individual circumstances can affect the result.

The Good

Makes investment property accessible to middle-income earners who could not afford to buy outright
Encourages rental supply because investors provide housing that owner-occupiers may not
Can be a legitimate wealth-building strategy in genuine growth areas with strong population and employment trends

The Bad

Bids up prices for owner-occupiers competing with investors who have a tax advantage
Favours the wealthy who can sustain losses year after year
Concentrates risk in one asset class. If property stalls, your entire wealth is tied up in one illiquid asset
Creates a taxpayer subsidy for loss-making investments, which is politically controversial

Does It Make Sense For You?

Yes if:

You have strong cash flow and can absorb losses without stress
You are in a high tax bracket where the deduction is most valuable
You are buying in a genuine growth area with strong population and employment trends
You have a long time horizon of 10 or more years

No if:

You are stretching to afford it and would be in trouble if interest rates rise
You are buying for tax reasons, not investment reasons. The property still needs to make sense as an investment without the tax break
You do not have other investments. Diversification matters. Putting everything into one property is risky
The yield is so low you are relying entirely on capital growth to make the numbers work

The Alternative

The same $700,000 invested in index funds, with no leverage:

No risk of margin calls or forced sales
No tenant issues, no maintenance costs, no strata fees
Historically similar or better long-term returns
Fully liquid. You can sell on any trading day

Negative gearing is not evil. But it is not magic either. It is leverage with a tax discount. Treat it that way.

Sources

The Bank Says You Can Borrow $700k. But Can You Actually Afford It?