Negative Gearing Example: $8,200 Tax Offset Case Study

Sarah is a registered nurse in Brisbane earning $85,000 per year. In early 2025, she buys a two-bedroom apartment in Woolloongabba for $550,000 using an interest-only loan at 6.2% with an 80% loan-to-value ratio. This case study walks through her numbers step by step to show how negative gearing works in practice, what it actually costs her each week, and why depreciation changes the equation.

The numbers below are illustrative only. Every investor’s situation is different, and tax rules can change. Use these figures to understand the mechanics, then run your own numbers through the negative gearing calculator.

Sarah’s property at a glance

Item	Amount
Purchase price	$550,000
Loan amount (80% LVR)	$440,000
Interest rate (interest-only)	6.2%
Weekly rent	$500
Sarah’s taxable income (salary)	$85,000
Sarah’s marginal tax rate (2025-26)	30%

Sarah chose an interest-only loan for the first five years to keep her repayments lower during the holding period. Her deposit of $110,000 came from savings built up over several years of nursing.

Step 1: Calculate annual rental income

Sarah’s property is rented at $500 per week, which is realistic for a two-bedroom apartment in inner Brisbane based on recent market data.

Annual rental income: $500 x 52 = $26,000

She budgets for two weeks of vacancy per year (between tenants), bringing effective rental income to $25,000. For simplicity in this example, we use the full $26,000.

Step 2: Add up annual expenses

The following table lists Sarah’s estimated annual expenses. These are typical costs for an apartment investment in Brisbane.

Expense	Annual cost	Notes
Loan interest	$27,280	$440,000 x 6.2%
Property management	$2,080	8% of rental income
Council rates	$1,600	Brisbane City Council
Water charges	$900	Rates portion (tenant pays usage)
Body corporate / strata	$3,800	Includes building insurance, sinking fund
Landlord insurance	$1,200	Rent default + liability cover
Repairs and maintenance	$800	Minor repairs averaged over the year
Letting fees	$520	One week’s rent (one new tenant per year)
Total expenses (before depreciation)	$38,180

Loan interest is by far the largest expense, which is typical for a leveraged property investment.

Step 3: Calculate the net rental loss (before depreciation)

	Amount
Rental income	$26,000
Less: total expenses	$38,180
Net rental loss	-$12,180

Sarah’s property costs $12,180 more per year than it earns in rent. This is the “negative” in negative gearing. But that is the pre-tax picture. The tax benefit changes the real cost significantly.

Step 4: Calculate the tax benefit

Sarah earns $85,000 from her nursing salary, which puts her in the 30% marginal tax bracket (the $45,001-$135,000 bracket for 2025-26) (ATO — Tax rates for Australian residents). Her net rental loss of $12,180 is deducted from her taxable income.

	Amount
Salary income	$85,000
Less: net rental loss	$12,180
Adjusted taxable income	$72,820

Because Sarah’s taxable income drops by $12,180, her tax bill falls by approximately:

Tax saving: $12,180 x 30% = $3,654

This means the property’s real after-tax cost is not $12,180 — it is $12,180 minus $3,654 = $8,526 per year, or about $164 per week.

Step 5: Add depreciation (the non-cash deduction)

Here is where the numbers shift substantially. Sarah’s apartment was built in 2018, so it qualifies for Division 43 capital works deductions (2.5% of the building’s construction cost over 40 years) (ATO — Capital works deductions (Div 43)) and Division 40 plant and equipment deductions (carpet, blinds, air conditioning, and similar items) (ATO — Depreciating assets in rental properties).

A quantity surveyor’s report costs $600-$750 and is itself tax deductible. For Sarah’s apartment, the depreciation schedule shows:

Depreciation type	Annual deduction	Notes
Division 43 (building structure)	$8,250	2.5% of $330,000 estimated construction cost
Division 40 (plant and equipment)	$2,800	Carpet, blinds, air conditioning, hot water, appliances
Total depreciation	$11,050

Depreciation does not cost Sarah anything out of pocket. It is a paper deduction based on the decline in value of the building and its fixtures. But it increases her total rental loss, which increases her tax benefit.

Revised net rental loss with depreciation:

	Amount
Rental income	$26,000
Less: cash expenses	$38,180
Less: depreciation	$11,050
Total net rental loss	-$23,230

Revised tax saving: $23,230 x 30% = $6,969

With depreciation, Sarah’s after-tax cost drops to $12,180 (cash loss) minus $6,969 (tax saving) = $5,211 per year, or about $100 per week.

That is a reduction from $164/week to $100/week — a difference of $64/week — simply by claiming depreciation that she was entitled to all along.

The comparison: Sarah vs Mark

Sarah’s colleague Mark bought a similar apartment at the same time and price. Both earn $85,000. The key difference: Mark did not get a depreciation schedule.

	Sarah (with depreciation)	Mark (without depreciation)
Net rental loss claimed	$23,230	$12,180
Tax saving (30% rate)	$6,969	$3,654
After-tax cost per year	$5,211	$8,526
After-tax cost per week	$100	$164
Difference per year		$3,315

Mark’s after-tax cost is $3,315 more per year than Sarah’s for a similar property, because he is not claiming depreciation. Over a 10-year holding period, that difference amounts to approximately $33,000 in additional after-tax cost.

What does negative gearing cost Sarah each week?

Bringing it all together:

Scenario	Weekly out-of-pocket cost	Weekly after-tax cost
Without understanding negative gearing (no deductions claimed)	$234	$234
With negative gearing (no depreciation)	$234	$164
With negative gearing + depreciation	$234	$100

The pre-tax cash cost is the same in all three scenarios: $12,180/year or $234/week. The difference is entirely in how much tax Sarah gets back. Negative gearing does not eliminate the cost of holding an investment property, but it substantially reduces the real after-tax cost.

In this scenario, the after-tax holding cost is $100 per week on a $550,000 property. Whether this represents a sound investment depends on factors including capital growth, rental trends, and Sarah’s broader financial situation.

What Sarah did right

1. Got a depreciation schedule early. The $600 report generated $6,969 in tax savings in the first year. Depreciation deductions are only claimable from the time the schedule is in place.
2. Chose interest-only for the initial period. This maximises the deductible interest component. Principal repayments are not tax deductible, so paying them during the accumulation phase does not increase her tax benefit.
3. Kept records from settlement day. Stamp duty, legal fees, and settlement costs are not immediately deductible, but they form part of her CGT cost base when she eventually sells.
4. Estimated the holding cost before buying. Sarah modelled her weekly after-tax cost before committing to the purchase.

What about capital gains when Sarah sells?

Negative gearing is only part of the picture. When Sarah eventually sells, she will likely face capital gains tax on the profit. However, if she holds for more than 12 months, she is generally eligible for the 50% CGT discount (ATO — CGT discount), meaning only half the capital gain is added to her taxable income for that year.

It is also worth noting that Division 43 depreciation deductions reduce the property’s cost base, which increases the taxable capital gain on sale. This is a trade-off: annual tax savings now versus a larger capital gain later. In most cases, the time value of money means the annual benefit outweighs the eventual cost, but this should be modelled for your specific situation.

Use the capital gains tax calculator to estimate the CGT impact for different sale prices and holding periods.

Run your own numbers

Sarah’s numbers are illustrative. Your income, loan amount, interest rate, rental yield, and expenses will be different. The negative gearing calculator lets you enter your own figures and see your estimated tax benefit, weekly cost, and after-tax position in seconds.

The premium property investment spreadsheet integrates negative gearing with CGT, depreciation, land tax, and multi-year cash flow projections.

Disclaimer

This case study uses a fictional scenario with illustrative figures to demonstrate how negative gearing mechanics work in Australia. It is general information only and is not tax advice, financial advice, or a recommendation to buy, sell, or hold any investment property. Tax rates, rules, and thresholds change over time. The 2025-26 tax rates and ATO guidance were used as at the date shown above. Your situation will differ. Consider speaking with a registered tax agent or accountant for advice specific to your circumstances.