Calculate Negative Gearing

Negative gearing is a tax strategy used by property investors in Australia and New Zealand. It occurs when the rental income from a property is less than the total expenses, resulting in a tax deduction that reduces the investor's taxable income.

What is Negative Gearing?

When an investor's rental income is less than their expenses, the difference is called the "gearing loss." This loss can be claimed as a tax deduction, effectively reducing the investor's taxable income. The more negative the gearing, the larger the tax deduction.

Negative Gearing Formula

Negative Gearing = (Total Expenses - Rental Income) / Rental Income × 100%

Negative gearing is only available to property investors in Australia and New Zealand. The strategy is not available in other countries.

How to Calculate Negative Gearing

Calculating negative gearing involves determining the difference between your property's expenses and rental income. Here's a step-by-step guide:

Calculate your total property expenses, including mortgage interest, property taxes, insurance, maintenance, and management fees.
Determine your rental income by multiplying the monthly rent by 12.
Subtract your rental income from your total expenses to find the gearing loss.
Divide the gearing loss by your rental income and multiply by 100 to get the negative gearing percentage.

Expense	Amount (AUD)
Mortgage Interest	$1,200
Property Taxes	$300
Insurance	$150
Maintenance	$200
Management Fees	$100
Total Expenses	$2,950

Negative Gearing Example

Let's look at an example to illustrate how negative gearing works. Suppose you own a rental property with the following details:

Monthly rent: $1,500
Annual expenses: $3,500

First, calculate your annual rental income:

$1,500 × 12 = $18,000

Next, subtract your annual expenses from your rental income to find the gearing loss:

$3,500 - $18,000 = -$14,500

Finally, divide the gearing loss by your rental income and multiply by 100 to get the negative gearing percentage:

(-$14,500 / $18,000) × 100 = -80.56%

This means you have a negative gearing of 80.56%.

Negative Gearing vs Positive Gearing

Negative gearing and positive gearing are two different tax strategies used by property investors. Here's a comparison of the two:

Negative Gearing	Positive Gearing
Occurs when rental income is less than expenses	Occurs when rental income is greater than expenses
Results in a tax deduction that reduces taxable income	Results in a taxable income that increases tax liability
Used to reduce taxable income and increase after-tax cash flow	Used to increase taxable income and reduce after-tax cash flow
Available in Australia and New Zealand	Available in most countries

FAQ

What is the difference between negative gearing and positive gearing?

Negative gearing occurs when rental income is less than expenses, resulting in a tax deduction. Positive gearing occurs when rental income is greater than expenses, resulting in a taxable income.

Is negative gearing available in all countries?

No, negative gearing is only available in Australia and New Zealand. The strategy is not available in other countries.

How does negative gearing affect my taxable income?

Negative gearing reduces your taxable income by the amount of the gearing loss. This can result in a lower tax bill and more after-tax cash flow.

Can I claim negative gearing on my personal income tax return?

Yes, you can claim negative gearing on your personal income tax return. The gearing loss will be deducted from your taxable income.

What are the benefits of negative gearing?

The benefits of negative gearing include reducing your taxable income, increasing your after-tax cash flow, and potentially increasing the value of your property.