What changes have been announced to negative gearing rules?
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:
- Properties acquired after 1 July 2027: From this date, investors will only be able to negatively gear newly-built properties. Investors will no longer be able to negatively gear newly-acquired established properties and use losses to offset their other income. They will, however, still be able to use investment property losses to offset income on their investment property (just not other income).
- Properties acquired from 13 May 2026 - 1 July 2027: All properties acquired in this time period will be eligible for the existing negative gearing rules, but only up to 30 June 2027. Newly-built properties will remain eligible after that date, but established properties won’t be.
- Properties acquired before 13 May 2026: Existing properties acquired before the changes were announced will be exempt from the new rules and the existing negative gearing system will still apply to those properties.
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.
Will the negative gearing changes impact investors’ borrowing capacity?
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
What is negative gearing?
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.
Maximising tax benefits when purchasing an investment property
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
How does negative gearing work?
Here’s an example of how negative gearing works.
- Suppose you have an annual salary/taxable income of $80,000
- You own an investment property generating $20,000 in rental income each year
- Your property expenses, including mortgage interest, council rates, insurance premiums, and other costs, total $25,000 (this results in a taxable loss of $5,000)
- Using negative gearing, you could deduct this $5,000 loss from your annual taxable income of $80,000, reducing it to $75,000.
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.
Negative gearing tax benefits
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.
How to calculate negative gearing tax savings
Example negative gearing tax savings calculation
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:
- Original annual taxable income: $80,000 (estimated tax $14,788)
- Rental income: $20,000
- Eligible expenses (e.g. mortgage interest, maintenance, property management fees, insurance, etc.): $25,000
- Net rental loss: $5,000
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)
How to claim negative gearing on your tax return
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.”Pros & cons of negative gearing
Pros
- On eligible properties, negative gearing reduces your taxable income by the equivalent of your rental loss (i.e. if your rental loss is $5,000, it reduces your taxable income by that amount).
- Negative gearing gives you the flexibility to pursue properties with growth potential, even if they initially incur losses, as opposed to restricting you to areas where rental income covers all expenses.
- Negative gearing may encourage investors to keep rents lower than they otherwise might be to offset rental losses against other income.
Cons
- From 1 July 2027, the ability of investors to access tax benefits from negative gearing will be much more limited. Only newly-built properties and properties acquired before 13 May 2026 will be eligible.
- Negative gearing can impact your cash flow, so you’ll need to ensure you have enough income from other sources to cover your loan repayments and other pre-tax costs.
- It may take longer to recoup borrowing and property transaction costs (e.g. stamp duty, mortgage registration fees) when you’re negatively geared.
Does negative gearing favour high-income earners?
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%.
- Adjusted annual taxable income: $180,000 − $5,000 = $175,000 (estimated tax $49,788 excluding Medicare levy)
- Negative gearing tax savings: $5,000 × 0.37 = $1,850 (or $51,638 − $49,788)
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.
Is negative gearing worth it?
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.
Negative gearing doesn’t come without risks
Uncertain income
Initially, you won't generate a passive income from the investment property, and there's no guarantee when you will start earning one.
Capital gains dependence
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.
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