Can You Negative Gear A Granny Flat?

Posted 9th February, 2025

Short answer, yes, it’s possible to negative gear your granny flat investment. If you’re thinking about investing in a granny flat, here’s what to understand about negative gearing.

What is ‘negative gearing’ in property investment?

• Negative gearing means an investment is providing less income than it costs to maintain the asset. Your taxable income is thus reduced, costing less at tax time and possibly even earning you a tax refund
• Inversely, when an investment is positively geared, it is making a profit above the money spent on it, such as loan repayments and management costs
• If neither income and expenses of an asset are roughly the same, it is neutrally geared
• You can negatively gear a granny flat in Australia if the rental income is less than the costs of owning the property
• If the rental income generated by the granny flat is not enough to cover the cost of maintaining it (with loan interest payments and other ongoing expenses), then your property will be negatively geared and you can claim your loan interest payments and ongoing expenses as tax deductions

Is it better to negative gear or positive gear a Granny Flat?

• Either way, you’ll still need to pay tax on the rental income you earn from your granny flat
• Negative gearing can benefit wealthier people who invest in multiple properties
• Positive gearing provides immediate cash flow
• Consult a financial advisor about your particular circumstances

What to do with a negatively geared granny flat?

• Claim expenses like loan interest, maintenance, insurance, strata fees, rates, and taxes as tax deductions
• Claim depreciation on your granny flat, which is usually a percentage of the construction cost over a set period of time
• If you need faster cash flow and want the property positively geared, consider your options to optimise the return on your investment by reviewing the resources below

Helpful Resources

If I rent out my granny flat do I have to pay Capital Gains Tax

Can I legally rent out my granny flat to gain a rental income?

What you should know about investing in a granny flat versus buying a new investment property

Building a granny flat? Be aware of the Hidden Costs

How to make your granny flat the fool proof investment

Does building a granny flat add value to your home on the Northern Beaches?

How to take property photos to rent out your granny flat & find a tenant

What is Agritourism and who can make the most of it with Granny flats and Tiny Houses

How To Price My Granny Flat Rental

 Property Managers vs Self-Managing Your Granny Flat Rental: A Landlord’s Guide

How to Add Luxury to Your Granny Flat to Justify High Rent Rates

Should I rent out my property furnished or unfurnished?

Here is Why the Rewards Outweigh the Risks of Making Your Granny Flat Rental Property a Pet Friendly Home