Negative gearing means investors can use a loss on a rental property to offset income elsewhere and pay less tax
From 1 July 2027 only newly-built investment properties will be eligible for negative gearing tax benefits
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Note, this is a guide containing general information only. Please seek personalised professional advice from a qualified advisor before making significant financial decisions.
In the 2026 Federal Budget, the Government announced proposals to limit the ability of new property investors to use losses on their investment property to offset other income, through what’s known as negative gearing. There are three main takeaways:
Research from Money.com.au reveals that more than 1 in 5 property investors (22%) say that capping or limiting negative gearing concessions would prompt them to step back from investing in real estate.
Michael Burgess, Money.com.au Senior Mortgage Broker
“Potentially, yes. If introduced, the proposed negative gearing changes could reduce borrowing capacity for some investors, particularly for buyers of established investment properties after 1 July 2027. That’s because lenders often include the tax benefits of negative gearing in their servicing calculations. If investors can no longer offset rental losses against their salary, the after-tax cost of holding a loss-making property increases. It’s worth talking with a mortgage broker to understand these potential impacts, plus ways to lower investment loan costs and other avenues for boosting borrowing capacity.”
Michael Burgess, Money.com.au Senior Mortgage Broker
Negative gearing is when your investment property costs (e.g. your home loan interest, maintenance costs) exceed your rental returns. This means you've made a loss on your rental property which you can claim as a tax deduction against other income (e.g. your salary, other rental properties).
This has made negative gearing a popular investment strategy in Australia, especially for borrowers in higher tax brackets. However, the rules are set to change from 1 July 2027 which will effectively mean negative gearing will only be possible on newly-acquired property if they were purchased as a new build.
The opposite of negative gearing is positive gearing, which occurs when rental returns exceed home loan repayments and other property costs. Neutral gearing is when an investment property’s income and expenses are roughly equal.
‘Gearing’ simply means borrowing money to buy an asset. It’s commonly associated with investment properties but can also apply to other types of investments, such as shares.
Nick Burgess, Money.com.au Senior Mortgage Broker
“We recently helped a healthcare professional expand their investment portfolio with a new land-and-build property. Their goal was to fund the project without draining their savings or accessing their home loan redraw facility, which was a key part of their debt reduction strategy.
After reviewing their options, we identified that using personal savings for the deposit and construction costs could reduce some of the negative gearing benefits available on the investment. Instead, we structured an equity release from an existing investment property to fund the deposit and construction. This allowed the client to preserve their cash reserves while maximising the amount of interest-deductible debt linked to the investment.
The client was initially hesitant about using this loan structure, so I explained how this strategy could support their long-term investment goals and potentially provide a more tax-effective outcome than using cash or focusing solely on paying down debt faster. We successfully secured pre-approval for the land-and-build project and the rest is history.”
Nick Burgess, Money.com.au Senior Mortgage Broker
Here’s an example of how negative gearing works.
If you project that your investment property will be negatively geared (i.e. incur a loss) over the financial year, you can request a PAYG Withholding Variation from the Australian Taxation Office (ATO) to reduce the amount of tax deducted from your salary. This can help improve your cash flow during the year.
In the context of negative gearing, only the interest component of the loan is typically considered when calculating a loss, not the full repayment amount. This is because the interest portion is tax-deductible, while the principal repayment is not. That’s one reason why some property investors favour interest-only loans as 100% of the loan repayments may be tax deductible (principal payments are never deductible).
Before making any property investment decisions, it’s best to speak to a mortgage broker and/or tax adviser about your options.
Negatively gearing an eligible property allows you to claim a net rental loss against other taxable income, such as your salary, business income, or rental income from other properties. If your other income is not enough to offset the loss from your rental property, you can carry forward your loss to the following income year, according to the ATO.
According to H&R Block, to calculate your negative gearing tax savings, you’ll need to add up all your eligible property expenses incurred in a tax year and subtract any rental income earned. Assuming you’ll incur a loss, subtract the resulting amount from your taxable income to determine your tax owing based on your marginal tax rate.
Example negative gearing calculation:
Adjusted annual taxable income: $80,000 − $5,000 = $75,000 (estimated tax $13,288)
Negative gearing tax savings: To determine the exact tax savings, you would apply the marginal tax rate to the reduction in taxable income. You’re assuming a marginal tax rate of 30% (for income between $45,001 and $135,000 in Australia for the 2025-2026 tax year).
Tax savings: $5,000 × 0.3 = $1,500 (or $14,788 - $13,288)
According to Mark Chapman, Director of Tax Communication at H&R Block: “In the rental property section of your tax return, you simply record both the income and the expenses attached to the property. The loss is then offset against your other income. Any surplus loss (i.e. any loss which could not be offset against other income) is carried forward and is available to use in a future income year.”
Mark Chapman, Director of Tax Communication at H&R Block
“Yes, because the loss that you make on your annual rental losses is relieved at your marginal (top) rate of tax. If you are a 45% taxpayer, you receive far more benefit than someone who is only a 19% taxpayer (or indeed someone who doesn’t pay tax at all, in which case there is no benefit!). In other words, negative gearing works best at the top tax rates because those rates give the biggest tax breaks. At the lower tax rates, the benefits shrink proportionately.”
Mark Chapman, Director of Tax Communication at H&R Block
Let's say someone earns $180,000 annually (estimated tax $51,638 excluding Medicare levy) and incurs a rental loss of $5,000. Under the 2025–26 Australian income tax rates, income between $135,001 and $190,000 is taxed at a marginal rate of 37%.
So, with a $5,000 rental loss, this results in an estimated tax saving of $1,850 for someone earning $180,000 per year, compared to a tax saving of $1,500 for someone earning $80,000 annually and incurring the same rental loss under the current 30% marginal tax bracket.
Due to the pending changes limiting negative gearing to newly built properties, it will likely become a less potent tool for investors.
But negative gearing can be an effective strategy for investors looking to reduce their tax liability while capitalising on potential long-term capital growth on eligible properties (if they hold onto the property for long enough). However, it’s only suitable for investors with sufficient cash flow during the negative gearing period to meet their loan repayments and cover other property expenses until they can claim their deductions at tax time each year, according to Mark Chapman.
According to the latest Tax Expenditures and Insights Statement, among the 2.4 million property investors who claimed rental deductions in 2020–21, almost 1.2 million (49%) negatively geared their properties and declared a net rental loss.
Initially, you won't generate a passive income from the investment property, and there's no guarantee when you will start earning one.
A negative gearing strategy may also increase your reliance on capital gains, which are never guaranteed (especially in slow growth periods). That is unless you attempt to manufacture capital gains yourself with renovations or improvements (potentially costing you more money).
It’s best to chat to a mortgage broker and/or tax adviser about your options before making any property investment decisions.
Positive and negative gearing only apply to investment properties. Owner-occupier properties (i.e. main residences) aren’t subject to either of them, according to the ATO.
From 1 July 2027, only newly-built investment properties and established properties acquired before 13 May 2026 will be eligible to be negatively geared to offset other income.
Negative gearing has been part of Australia’s tax laws since 1936 under the Income Tax Assessment Act. Initially, it allowed losses from rental properties to be deducted only from rental income. Today, negative gearing can offset any taxable income, including wages. However, debate around its effect on housing affordability led the Government to partially abolish it for two years between 1985 and 1987. This led to a housing shortage and rising rents, and as a result negative gearing was reinstated and capital gains tax was introduced.
Advocates of negative gearing suggest it provides an incentive to keep rents low as investors can offset their rental losses against other income and reduce their overall tax liability.
However, critics of negative gearing say it increases the demand for property and therefore drives house prices up – making it harder for first-home buyers to enter the property market.
You may not be able to claim negative gearing tax deductions for losses incurred by a property held in a trust. That’s because trusts generally cannot distribute losses to their beneficiaries (therefore losses can’t be deducted from your personal taxable income). But it can carry forward losses for an indefinite period, according to the ATO.
According to the ATO, expenses that you can claim on your investment property in any financial year include:
You may also be able to claim deductions for capital works (including renovations), and depreciation of fixtures and fittings over time.
Megan Birot is a Finance Writer and Head of PR at Money with over a decade of industry experience. She keeps her finger on the pulse of financial trends, providing journalists and media with data, insights, and news that help Australians navigate complex topics and concepts. She's certified in Finance & Mortgage Broking and is compliant to provide general advice in Tier 1 General Insurance.
Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.
