You have done the suburb research. You have looked at dozens of properties. The question now is whether the numbers behind the purchase actually work in your favour. Most investors focus heavily on the purchase price and not much else. These five figures tend to do most of the heavy lifting.
1. Your marginal tax rate
Rental income is not taxed at a special property rate. According to the ATO, rental income earned by Australian tax resident property owners is taxed as part of total taxable income, treated the same as other income. That means the tax you pay on your rent, and the value of any deductions you claim, depends entirely on the bracket you sit in.
For the 2025-26 income year, Australian resident rates are: nil up to $18,200, 16% from $18,201 to $45,000, 30% from $45,001 to $135,000, 37% from $135,001 to $190,000, and 45% above $190,000, plus the Medicare levy for most taxpayers.
Know your rate before you model anything. A deduction is worth more to someone on 37% than to someone on 30%. That changes how you think about negative gearing, depreciation, and timing.
2. The stamp duty figure for your state
Stamp duty is the cost most buyers underestimate because it does not show up in the listing price. It is due at or around settlement and cannot be added to your mortgage.
Stamp duty is the largest upfront cost on most property purchases. Each state and territory sets its own brackets, concessions, and surcharges, with the result that the same $700,000 investment property carries roughly $24,500 in Queensland against $37,000 in Victoria, with the other states landing in between.
Stamp duty is not tax deductible as an annual expense for investment properties. You cannot claim it as a deduction against your rental income. However, stamp duty is added to the cost base of your property for capital gains tax (CGT) purposes, meaning when you eventually sell the investment property, the stamp duty you paid reduces your taxable capital gain.
Always confirm the figure with the relevant state revenue office before exchanging contracts. Each state publishes a calculator: Revenue NSW, State Revenue Office Victoria, Queensland Revenue Office, and so on.
3. Your annual holding cost after tax
Negative gearing is widely discussed, but the term masks what is actually happening. You will not find the phrase "negative gearing" in tax legislation. It is a commonly used term to describe a situation where expenses associated with an asset, including interest expenses, are greater than the income earned from the asset.
A property is negatively geared if your deductible expenses are more than the income you earn from it. You can claim deductions for rental expenses against your rental and other income, such as salary, wages, or business income. If your other income is not enough to absorb the loss, you can carry forward the loss to the next income year.
Deductible expenses commonly include loan interest, council rates, property management fees, repairs, landlord insurance, and land tax. One of the most common investor mistakes is claiming principal repayments. Only the interest portion of your mortgage is deductible. Principal repayments reduce your loan balance but are not a tax deduction.
The number to calculate is your after-tax holding cost: the actual cash leaving your pocket each year after the tax saving is factored in. That is the figure you need to be comfortable carrying, month after month, across vacancy periods and interest rate movements.
Important note: Properties held at the 2026-27 Budget announcement (7:30pm AEST 12 May 2026) will be exempt from the proposed negative gearing changes. The announced reform would limit negative gearing for residential property investments to new builds from 1 July 2027. This is a proposed change, not yet enacted legislation. It is a material factor to discuss with a tax adviser before purchasing any established property.
4. The 12-month CGT threshold
How long you hold the property directly affects the tax you pay when you sell.
There is a CGT discount of 50% for Australian resident individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset.
CGT is not a separate tax in Australia. It is the income tax you pay on a capital gain when you sell an asset for more than its cost base. For investment property, the capital gain is added to your other taxable income in the financial year you sell, and the total is taxed using the standard income tax brackets.
Sell before 12 months and the full gain is taxed at your marginal rate. Sell after 12 months and only half the gain is included. On a $200,000 gain, that difference could be tens of thousands of dollars.
The 2026-27 Federal Budget announced that the government would replace the 50% CGT discount with a discount based on inflation and introduce a minimum 30% tax on gains from 1 July 2027. The CGT reforms will only apply to gains arising after 1 July 2027, and investors in new builds will be able to choose the 50% CGT discount or the new arrangements. Again, this is announced policy, not yet law. It warrants a specific conversation with your tax adviser.
Also note: many investors are surprised to learn that Division 43 (capital works) deductions claimed during ownership reduce the property's cost base when they sell. This increases the capital gain and therefore the CGT payable.
5. The realistic rental yield and what vacancy does to it
Gross rental yield is the annual rent divided by the purchase price. It is a starting point, not the whole picture. Management fees, maintenance, council rates, insurance, and vacancy periods all reduce what actually lands in your account.
Vacancy is the number most investors underestimate. A property sitting empty for four weeks a year represents roughly 7.7% of its annual rental income going to zero. Two months vacant is nearly 17%. These are not extreme scenarios in certain markets or property types.
Before you commit, get an independent rental appraisal from a property manager active in that specific suburb. Do not rely on vendor estimates or developer projections. Ask the property manager what realistic vacancy has looked like over the past 12 to 24 months in comparable properties nearby.
A rental yield figure only becomes useful once you have adjusted it for realistic occupancy, all outgoings, and the after-tax holding cost from number three above.
A worked example: putting all five together
Consider a $650,000 property in Queensland purchased as an investment.
- Stamp duty: Queensland has five brackets from 1.5% to 5.75% and is among the cheapest states for stamp duty on typical investment properties. A $600,000 property costs $20,025. At $650,000 the figure would sit somewhat higher; confirm with the Queensland Revenue Office calculator before signing.
- Marginal rate: The buyer earns $120,000 salary, placing most additional income in the 30% bracket (plus 2% Medicare levy).
- Holding cost: The property generates $26,000 rent per year against $38,000 in deductible expenses (interest, rates, management, insurance). The $12,000 rental loss, at a combined marginal rate of 32%, reduces tax by approximately $3,840, bringing the real annual out-of-pocket cost to around $8,160 before vacancy.
- CGT clock: The buyer intends to hold for at least seven years, comfortably qualifying for the current 50% discount on any eventual gain.
- Yield reality: Gross yield is approximately 4.0%. After management fees and a conservative two-week vacancy allowance, net yield sits closer to 3.4%. The investor needs to be comfortable funding the gap between rent and holding costs from their own income.
These are illustrative figures only. They are not a projection or a forecast.
What to do next
If you are working through these numbers for a property you are considering, three concrete steps will move you forward:
- Confirm your marginal rate and deductible position with a registered tax agent or accountant who works with property investors. The proposed negative gearing and CGT changes make this conversation more important than it has been for years.
- Get an independent rental appraisal from a property manager in the target suburb, not a figure from the listing or a developer's information pack.
- Talk to a licensed mortgage broker about your borrowing capacity and the real cost of finance, including the comparison rate, not just the headline rate.
If you would like to understand how EWC sources properties and coordinates the finance process for investors, you can read more on our services page or book a call to walk through your situation.
General information only, not personal financial advice. Speak with a licensed adviser before acting.