Going All In on Property: The Good, the Bad & the Negatively Geared

Thinking about diving into the property pool? Whether you're chasing capital gains or just love the smell of fresh paint and potential, investing in real estate can be a game-changer. But before you start picking out tiles and tenants, let’s talk about the tax twists that come with negative gearing.

What Even Is Negative Gearing?

Let’s break it down without breaking your brain.

Negative gearing is when the costs of owning an investment property (like interest on the loan, maintenance, insurance, council rates – the usual suspects) are more than the rental income it brings in. That shortfall? It creates a loss.

Tax twist: That loss isn’t just money gone, it can actually be used to reduce your taxable income. So while your property might be losing money on paper, your tax bill could shrink too. Confetti cannon... half-loaded.

PS: Loan principal repayments don’t count here—they’re capital in nature and not deductible. Only the interest portion gets a seat at the tax-deduction table.

So Why Bother? The Upside of Being in the Red

It’s not just about pain for gain, there can be perks:

Offset Your Income

A negatively geared property lets you deduct that loss from your other income (like your salary). So if your property is costing you $10,000 more than it earns, that $10k can reduce your taxable income. Hello, lower tax bracket (maybe).

Boost Your Cash Flow (Sort Of)

For high-income earners, this strategy can soften the tax blow and free up some cash now, while betting on long-term gain later. It’s a tax efficiency play with a side of patience.

Play the Long Game with Capital Growth

The goal? The property's value increases over time, and when you eventually sell, you (hopefully) walk away with a tidy profit. The negative gearing helps you hold the property while you wait for it to do its thing.

Whilst we are at it, we thought we would throw in some hot, hot, hot, ALL IN tax tips 🔥

Let’s dig into the bits that get left off most checklists (and can really move the needle):

Depreciation: The Hidden Gem

You may be able to claim depreciation on:

• The building (if built after 1985)

• Fixtures and fittings (appliances, carpets, blinds, etc.)

This can significantly boost your deductions, without touching your cash flow.

Pro tip: Get a depreciation schedule from a quantity surveyor. You’ll thank us later.

Repairs vs. Improvements

Not all expenses are created equal:

• Repairs & maintenance = deductible now

• Improvements/upgrades = capital, claimed over time

If it restores function = deductible. If it makes it better = depreciate it, baby.

What Else Can You Deduct?

Let’s run the receipts:

✅ Property management fees

✅ Council & water rates

✅ Landlord insurance

✅ Strata fees

✅ Advertising for tenants

✅ Accounting fees for the property

✅ Legal costs for evicting tenants or lease renewals

✅ Interest on loans related to the property

✅ Emergency services levy

Heads up, that travel to inspect the property is no longer deductible (thanks to a 2017 rule change).

So when are these hot tax deductions available to be claimed? Deductions start from the moment the property is available for rent, not just when it’s tenanted. Keep those dates handy for your tax return. 😉

Let's throw in the steak knives with some FAQ's

“Can I negatively gear a property I live in?”

Short answer: nope. Your main residence is not income-producing, so it doesn’t qualify for negative gearing.

“What if I turn my home into a rental?”

Then it’s game on (from the date it's listed as available to rent). From that point, interest and other holding costs become deductible.

Note: There are capital gains tax implications here that you will need to get some advice on.

“Can I claim interest on the full loan?”

Only if the loan was 100% used for the investment property. If it’s a mixed-use loan (say, you bought a car and a house with the same loan), the interest must be apportioned.

“What happens when I sell?”

Cue Capital Gains Tax (CGT). When you sell the property, you may pay CGT on the profit, but if you’ve held it for more than 12 months, you could be eligible for a 50% discount on that gain.

All In’s Golden Rules Before You Gear Up

Thinking of dipping your toes into the property pond? Do this first:

✅ Crunch the numbers like your life (and cash flow) depends on it (and remember the stamp duty and other costs associated with the purchase)

✅ Speak to a qualified accountant (we’ve got some numbers wizards on speed dial 😉)

✅ Don’t chase tax breaks alone, make sure the property stacks up on location, demand, rental yield, and growth potential

Final Word: Gearing Up or Gearing Down?

Negative gearing isn’t a dirty word, but it’s not a golden ticket either. It’s a strategy, and like all good strategies, it needs planning, precision, and a solid backup plan. Done well, it can be a powerful tool to build wealth and reduce tax. Done poorly, it can sink your cash flow faster than a leaking roof in a rental you forgot to inspect. So before you go all in on bricks and mortar, make sure you're not building your financial future on shaky ground.

Want help running the numbers or testing scenarios? That’s our jam. Let’s chat before you sign on the dotted mortgage line.

Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice