Negative Gearing Calculator

The Negative Gearing Calculator models the Australian investment-property equation: when rent does not cover the interest and costs, the loss offsets your other income at tax time, and this calculator shows the true after-tax cost of holding the property. Enter annual rent, interest, other expenses, depreciation, and either your salary (it applies the stored 2025-26 Australian tax scale and Medicare levy) or your marginal rate directly.

How It Works

Total deductions are interest plus other expenses plus depreciation. Net rental income is rent minus total deductions; a negative figure means the property is negatively geared. The cash shortfall is smaller than the tax loss, because depreciation is a non-cash deduction: cash expenses are interest plus other expenses only. The tax benefit ("refund") is the difference between the tax on your salary alone and the tax on salary plus the rental loss, computed through the bracket scale, and the out-of-pocket cost is the cash shortfall minus that tax benefit, also shown per week.

$\text{Net rental income}=\text{Rent}-(\text{Interest}+\text{Other expenses}+\text{Depreciation})$

$\text{Out-of-pocket}=\underbrace{(\text{Interest}+\text{Other})-\text{Rent}}_{\text{cash shortfall}}-\text{Tax saved by the loss}$

Parameters

| Input | Required | Meaning | |---|---|---| | Annual rental income | Yes | Rent collected for the year | | Annual interest | Yes | Loan interest on the property | | Annual other expenses | Yes | Rates, insurance, management, repairs, and similar | | Annual depreciation | No | Capital works and plant deductions (non-cash) | | Taxable salary | No | Enables the full bracket-based tax comparison | | Marginal tax rate | No | Alternative simpler basis for the tax effect |

Worked example

Rent is $26,000 a year. Interest is$24,000, other expenses $6,000, and depreciation$4,000: total deductions of $34,000 against$26,000 of rent give a net rental loss of $8,000, so the property is negatively geared. The cash shortfall is only$4,000 (the $30,000 of cash costs against$26,000 of rent), the depreciation being a paper deduction. On a $95,000 salary, the stored 2025-26 scale plus Medicare levy gives tax of$21,188 without the loss and $18,628 with it, a tax saving of **$2,560**. Out-of-pocket cost: 4,000 - 2,560 = $1,440 a year, about$27.69 a week, the holding cost the investor is really paying for the growth bet.

The strategy, stated honestly

Negative gearing is a bet that capital growth outruns the annual out-of-pocket cost, sweetened by two tax features: the loss is deductible now against fully taxed salary, and the eventual capital gain is discounted (the 50% CGT discount for assets held over twelve months) and deferred until sale. The calculator's weekly out-of-pocket figure is the price of the ticket: at $27.69 a week the property needs to appreciate by only about$1,440 a year (plus selling costs, eventually) to break even in cash terms, while at $150 a week it needs serious growth. The bet fails when growth stalls, when rates rise and widen the cash shortfall, or when the investor's income drops and the deduction's value drops with it, since a loss is worth most at the highest marginal rate.

Depreciation: the deduction that is not a cost

Depreciation (capital works on the building and decline in value of plant and equipment, usually from a quantity surveyor's schedule) reduces the tax loss without any money leaving your account, which is why the cash shortfall and the tax loss differ. Newer properties carry far larger depreciation than older ones, a genuine factor in the new-versus-established debate. Note the symmetry: depreciation claimed reduces the property's cost base, increasing the taxable gain on sale, so part of today's benefit is a loan from the future tax bill rather than a gift.

Limitations

The model is a single-year estimate using the stored 2025-26 resident scale and an approximate Medicare levy (including its low-income shading). It does not model the CGT discount, land tax, state variations, vacancy, the split of ownership between joint owners (each owner's share should be run separately at their own salary), or future law changes, and gearing rules are a perennial policy debate in Australia. It is a planning illustration, not tax advice.

Frequently Asked Questions

What is the difference between the tax loss and the cash shortfall?

Depreciation. The tax loss includes it; the cash shortfall does not, because no cash left your account for it. The gap between the two figures in the example ($8,000 versus$4,000) is exactly the depreciation claimed.

Does negative gearing require the property to lose money?

It requires the deductible expenses to exceed the rental income for tax purposes. Many such properties are cash-flow negative too, but a property can be tax-negative while cash-positive when depreciation is large, which is the most comfortable version of the strategy.

Why enter salary instead of just a tax rate?

Because the loss may span two brackets: a large loss can pull the top slice of income down a bracket, making the blended saving smaller than the headline marginal rate suggests. The bracket-based comparison prices that correctly; the flat-rate option is the quick approximation.