- Negative gearing is an investment strategy where the cost of owning an asset exceeds the income it generates
- The net loss can be deducted from the owner's other taxable income
- Negative gearing of existing residential properties was scrapped in the May federal budget but remains in place for investors already holding them
- It also applies to investments in new built homes and other asset classes
There is arguably no tax measure so fiercely debated as negative gearing, the strategy that effectively allows property investors to reduce the tax they paid if their investment properties made an overall loss.
If that sounds too good to be true, it seems it was.
Changes to negative gearing
At 7:30pm on 12 May 2026, negative gearing tax breaks on investments in existing residential properties were ended as part of the 2026-27 Federal Budget.
The move was framed as restoring "intergenerational fairness" by levelling the playing field between younger homebuyers and investors in the housing market.
However, the new rules were grandfathered, meaning existing investors would retain their negative gearing tax benefits until their properties are sold.
Investors buying existing residential properties after 7:30 pm, 12 May 2026, will only be able to negatively gear them until 1 July 2027.
Negative gearing will still apply to new build residential properties, commercial properties, and shares.
Before we get into the detail, it pays to understand exactly what we're taking about.
What is negative gearing?
Negative gearing occurs when you borrow money to make an investment, and the ongoing expenses of that investment are greater than the ongoing income you receive from your it.
In this scenario, you may be able to deduct this loss from your total taxable income each the financial year, effectively saving you tax. This was applied to any asset - property or shares. For the purpose of this article, we’ll focus on property.
What is gearing?
Gearing simply refers to borrowing money to buy an asset. There are two types of gearing:
- positive gearing: when the income you get from your asset is greater than the tax-deductible expenses you've incurred from owning it
- negative gearing: when the cost of owning your property is greater than the income (rent) you get from it
How does negative gearing work?
There isn’t a set process defining how to negative gear, nor will you find the term in any tax law.
The ATO states: “your rental property is said to be ‘negatively geared' if your deductible expenses are more than the income you earn from the property”.
If you've got an investment property purchased (or contracts exchanged) before 7:30 pm on 12 May 2026, any financial year where you make an overall loss on your investment, the ATO deems the tax result a net rental loss on your investment.
You then may be able to claim a deduction for that loss, bringing down your total taxable income for the year and effectively saving you tax. If your income isn’t large enough to absorb the rental loss, you can carry it forward to the following financial year’s income.
How many property investors are using negative gearing?
According to the latest Australian Taxation Office (ATO) figures, 2.25 million individual taxpayers claimed deductions against the rental income they were making. Of these, just under half - around 1.1 million - were ‘negatively geared’, that is, making an overall loss on their rental properties.
The Property Council of Australia put the average deduction for negative gearing at just over $8,700 a year.
What can you claim on negative gearing?
Deductions you can claim are typically the costs you, the investor, have paid for, not your tenant/s. These could include:
The interest on your mortgage
Title search fees
Mortgage broker fees
Conveyancing/solicitors' fees
Valuation fees required for loan approval
Advertising if you need to find new tenants
Bank fees and ongoing loan fees
Depreciation
Council fees
Legal expenses
Property management fees
Insurance costs
Electricity, water, and gas not paid for by the tenant
Repairs and maintenance
Refer to the ATO, a tax agent, or an accountant where possible if you’re not sure whether a deduction falls into one of these categories.
See also: How is rental income taxed?
How to calculate negative gearing
If you’re looking to get a rough idea of how to calculate negative gearing, you can follow the process below:
Calculate your property income: This will typically consist solely of the weekly rent your tenants are paying. Provided the property has been tenanted for the whole financial year, multiply the weekly rent by 52. If it’s been vacant for any period, subtract the number of weeks it had no tenants from 52 then multiply by the weekly rent.
Calculate your property expenses: This will include the interest payments on your mortgage, insurance, property management fees, council rates, repair and ongoing maintenance expenses, and many other costs you may have incurred. (Refer to the list above.)
Subtract depreciation: As your property ages, so does its contents, bringing down their value. Using a depreciation schedule can help you calculate how much items like carpets, ovens, heaters, and other items have decreased in value, which you can also subtract from your taxable income.
Alternatively, the Savings.com.au Negative Gearing calculator can do the maths for you.
This can give you a general idea as to how much the property is ‘negatively geared’ (or whether it is at all). However, it’s recommended you consult an accountant or tax agent who will have specialist knowledge as to what expenses are permissible.
Common negative gearing errors
According to the ATO, the most common mistakes property investors make in their tax returns are incorrectly claiming:
- renovation/improvement costs as repairs and maintenance costs. Both are claimable but renovations/improvements need to be depreciated.
- expenses when the property isn’t available for rent. You can only claim deductions when your property is generating rental income (or is available to rent but is vacant). You can’t claim any expenses for when it’s off the rental market for any reason.
- investment property loan repayments. You can only claim interest payments on your property loan, not any principal repayments.
- expenses they don’t have receipts for. It should go without saying, you will need to have proof of your claims.
Negative gearing case study
Negan Geary bought an an investment property valued at $600,000 on 11 May 2026. He had a $120,000 deposit (20% of the property’s value) and takes out a loan for $480,000.
The loan is an interest-only mortgage, popular among investors, repaid over 25 years with a five-year interest-only period, at an interest rate of 5.50% p.a.
Negan’s monthly loan repayments are $2,948, or $35,366 for the year. He also had to pay:
- $1,000 to fix the air conditioning at the property
- $3,000 on home and contents insurance
- $2,000 in property management fees
Negan’s total investment expenses for the year came to $41,366.
Negan charged $500 in weekly rent, taking his annual rental income to $26,000.
Negan paid $15,366 more in expenses than what he earned in rental income. As a result, his property is negatively geared, and he may be able to deduct that amount from his taxable income for the year.
What are the risks of negative gearing?
Negative gearing is a popular and often viable investment strategy, but that doesn't mean it comes without risk. Here are some of the common drawbacks:
What happens if you can’t find tenants for the property?
Arguably the most important variable in having an investment property is having one with tenants in it. If your property is vacant, you’re probably losing money at a rapid rate. For example, if your property sits vacant for just one month and you’re charging $500 a week in rent, you’ve lost out on $2,000. That’s a serious chunk of money, particularly when you’re paying back an investment loan.
If you’re planning to negatively gear, you’re accepting you’re making a loss. But if you don’t have tenants, that loss will be even greater. You will more than likely still have a mortgage and bills to pay which your regular income may not be able to cover.
It’s vital you understand that although negative gearing can be an effective strategy, at the end of the day, you’re still losing money. That means the money you need to live and maintain an investment property has to come from somewhere. If you can’t afford to have an empty property, you could get into financial strife.
What if the property doesn’t increase in value?
Negative gearing can be a successful strategy for investors as they can carry their losses forward to a year where they plan to sell the property.
All goes well when the property has risen in value, which offsets the losses incurred in previous financial years, and still makes the investor a nice profit. [Bear in mind, this profit will likely be subject to capital gains tax (CGT) which also saw changes in the 2026-27 Federal Budget.]
But if your property doesn’t rise in value, you could be in trouble. You may be facing a situation where you’ve been negative gearing for five years, losing thousands of dollars each year with the goal to sell when the property goes up in value, but it hasn’t. At this point, you may be in serious debt and have to sell anyway to cover your costs.
See also: What makes a good investment property?
What will I do if interest rates rise?
The prospect of changing interest rates affects all borrowers. It’s worth remembering low interest rates will mean your investment loan repayments are also likely to be low, so if you’re negatively gearing, your overall losses may not be too great, and your tax benefit may not be that significant either. But how could you handle it if interest rates were to rise?
Many property investors found themselves in exactly this situation during the escalation in interest rates which began in May 2022. While rents also rose over the ensuing 18-month period, in many cases, they failed to keep pace with rising investment loan repayments, resulting in many investors selling.
If you’re looking to negatively gear an investment property, it’s vital you leave yourself a buffer in the event interest rates rise. If you haven’t planned for this eventuality, just a small interest rate hike could send you into crippling debt and force you to sell regardless of whether you’ve reaped any financial benefit.
Should I use negative gearing?
If you're buying an existing residential property as an investment after 7:30 pm on 12 May 2026, you will only be able to negatively gear it until 1 July 2027. After that, negative gearing will not be an option for you.
But if you’re building or buying a new residential property as an investment, or purchasing a commercial property, here are some of the questions you should be asking yourself before making a decision:
Does my property have strong capital growth opportunities?
Can I afford to incur the losses associated with negative gearing for a number of years?
How long can I afford to negatively gear before I need the property to be positively geared?
Can I afford the investment loan repayments in the event the property is untenanted?
Can I afford the investment loan repayments in the event interest rates rise?
Will the potential profit made from selling the home be greater than the losses I incur while negatively gearing?
Is this the most suitable investment strategy for me or should I explore other investment avenues?
If you still can’t make a decision, it’s wise to consult a financial adviser.
What’s the history of negative gearing?
Negative gearing was introduced in 1936 in a bid to encourage investment in housing during the Great Depression.
It has been a hot topic in the Australian political landscape over many decades with critics questioning the favourable tax treatment investors receive over regular homebuyers.
Negative gearing has been wound down once before in July 1985 when investment property losses were only allowed to be offset against future rental profits or capital gains, not total taxable income. However, negative gearing was reinstated in its original form just over two years later, in September 1987, amid housing shortages and rising rents in some cities.
Labor went to both the 2016 and 2019 federal elections promising to limit the tax benefits of negative gearing but was defeated at the polls both times.
In May 2026, the Labor government announced it was ending negative gearing tax benefits for investors purchasing existing residential properties. Changes to capital gains tax benefits for investors were announced at the same time.
Negative gearing: From both sides
Being such a politically charged issue affecting so many people, it’s worth presenting some of the arguments for and against the policy:
For:
- Negative gearing acts as an incentive to prospective investors to provide properties for the rental market. By restricting negative gearing to new builds only, it could see the overall pool of rental stock shrink, causing rents to increase.
- Many landlords are ‘mum and dad' investors who aren’t particularly well off. Currently, 71% of property investors have one investment property. Negative gearing eases the financial burden of owning property and encourages more wage earners to become investors.
- Negative gearing encourages more people to invest means there may be fewer people reliant on the age pension in the future.
- Scrapping negative gearing will mean it will be more expensive for new investors to be landlords. This is likely to see investors look to other asset classes which can arguably be more difficult to navigate - and perhaps riskier - than owning a rental property.
Against:
- Greater investor activity can mean there is less housing supply for first home buyers and owner-occupiers. This, in turn, can raise house prices and make it harder for young people to enter the market or for existing homeowners to upgrade their homes to meet their changing needs.
- Negative gearing helps many people who are already asset-rich and don’t need the tax break - in other words, it helps the rich get richer.
- Negative gearing deductions costs the government billions of dollars in lost tax revenue each year.
Savings.com.au's two cents
For many Australians, negative gearing has historically provided an affordable, tangible wealth-creation vehicle that is relatively simple to understand compared to investing in some other investment classes.
In more recent times, with housing supply stretched, it has arguably given investors an unfair advantage in a tight market, driving property prices higher and further out of reach for young homebuyers.
It remains to be seen whether limiting negative gearing to new homes only will address Australia's ongoing housing supply issues - or whether investors will look to other investment classes.
In the short term, it's likely there will be less investor activity in the residential property market with price growth cooling as a result. But, over the longer term, it will also remove the strategy as a wealth creation tool for younger Australians as they become more financially established.
As always, anyone considering negative gearing to build or buy a new home, or to invest in other asset classes, will need to do their homework to ensure they’re investing in a suitable asset and they understand the risks involved.
Pros and cons of negative gearing
Negative gearing can be a great way for investors to save on tax but it’s not without its pitfalls. Here are some of the pros and cons:
Pros:
- Potential tax savings by offsetting losses you incur in the year
- If your property has grown in value when it comes time to sell, you may be able to make back the losses you’ve incurred
- Claiming for expenses and depreciation can reduce your taxable income
Cons:
- You need to be able to afford the loss you’re incurring
- If your property doesn’t increase in value, your strategy may not be viable
- If interest rates rise, your losses will increase which you need to be able to cover
- Your borrowing power may decrease if you wish to purchase another property
Where to find an investor loan
If you're still keen to dip a toe in the property investment market, the table below features investor loans with some of the lowest interest rates on the market.
Lender Home Loan Interest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Extra Repayments Split Loan Option Tags Features Link Compare Promoted Product Disclosure
Promoted
Disclosure
Promoted
Disclosure
