Estimated reading time: 8 minutes
Negative gearing happens when an investment property costs more to own and run than it earns in rent. As the investor, you cover the gap between what the property costs and what it earns. The shortfall isn’t always easy to cover, but the tax benefits make negative gearing an attractive strategy for many Australian investors.
Key Takeaways
- Negative gearing happens when your property costs more to run than it earns in rent and the tax benefits can make this work in your favour.
- The 2026 Federal Budget announced the most significant changes to negative gearing in decades, with major implications for property investors.
- Whether negative gearing works for you depends on your income, risk tolerance, and long-term goals.
- Professional tax advice is more important than ever under the new rules.
Negative gearing vs positive gearing: What’s the difference?
There are clear differences between a negatively geared property and a positively geared one, including:
Negative Gearing
- The cost of owning and maintaining the property, such as mortgage interest, management and maintenance expenses, exceed the rental income.
- The property needs a regular cash top up to cover the difference between the expenses and the income it generates.
- You can deduct the property’s losses from your taxable income, which can potentially reduce your tax bill.
- Negative gearing is generally a ‘long-term’ strategy to build wealth.
- A negatively geared property relies on the property’s value growing over time, so that current losses are offset.
Positive Gearing
- The rental income is higher than the total cost of owning and maintaining the property.
- You need to pay tax on the income you make above the property expenses.
- Additional income can be reinvested or used to offset other investment costs.
- A positively geared property generates regular income, providing shorter-term financial gains.
- This strategy does not rely on future property appreciation as you earn gains straight away.
What are negative gearing tax benefits?
Although the costs of keeping a negatively geared investment property can mount quickly, there is an important tax advantage. You can deduct the property’s losses from your taxable income.
Example: If Geoff’s taxable income is $85,000 and his investment property losses total $10,000, his taxable income drops to $75,000.
How does negative gearing reduce tax?
When a property is negatively geared, your overall tax bill is reduced. Some investors receive a significant tax refund at the end of the financial year. For higher income earners, these investment losses can also offset other income and in some cases, even move them down a tax bracket.
Read more about investment properties and tax deductions for property investors over on our Property Investment Tax Hub
2026 Federal Budget: Major changes to negative gearing
The 2026–27 Federal Budget introduced the most significant changes to negative gearing in decades. If you own or plan to buy an investment property, here is what you need to know.
What is changing?
From 1 July 2027, negative gearing for residential properties will be limited to new builds only. This means investors who purchase an established (existing) residential property after Budget night (12 May 2026) will no longer be able to deduct losses against other income.
Here is a summary of who is affected and how:
| Your situation | How the new rules apply |
| You owned a property before 12 May 2026 | No change. Existing negative gearing arrangements remain in place until 1 July 2027. |
| You buy a new build after Budget night | Full negative gearing still applies. You can deduct losses against all other income. |
| You buy an established property after Budget night | You can still deduct losses against residential property income, but not against wages or salary. You can carry unused losses forward to future years. |
What about capital gains tax (CGT)?
The Budget also changed the 50% CGT discount to a new system based on inflation and introduced a minimum 30% tax rate on capital gains which will both apply from 1 July 2027. Investors in new builds can choose between the existing 50% discount and the new system, based on their own circumstances.
What should investors do now?
If you currently own a negatively geared investment property, your arrangements are not currently affected by the new rules. If you are considering purchasing an investment property, talk to your accountant or financial adviser. The type of property you buy, new build or established, will now have a significant impact on your tax position.
For expert guidance on how the 2026 Budget changes affect your tax return, speak to an Etax accountant.
Negative gearing calculator
Negative gearing isn’t always a deliberate choice. Interest rates and expenses can rise much faster than rents. This leaves many investors vulnerable to covering unexpected investment bills. If you’re not sure whether your property is negatively geared, check out this negative gearing calculator from ‘Your Mortgage’.
What are the risks of negative gearing?
Negative gearing carries real risk, as government policies can change what expenses you can claim, often without warning. With interest rates and the cost of living increasing, it’s not always possible to sustain the expenses of an investment property for long periods. This is especially true for many property investors who hold one or more properties to help fund their retirement.
According to Property Update, 71% of investors hold just one investment property, 19% of investors hold two and 6% of investors hold three.
Negative gearing also relies on the property value increasing over time. If the property’s value stalls and the rental prices don’t keep up with expenses, the property can become a long-term financial burden. It may also fail to deliver the returns needed at the point of selling or retirement.
Is negative gearing being abolished in Australia?
In recent years, debate around negative gearing tax reform has been intense. The 2026 Federal Budget has now delivered major change, though not a full abolition. From 1 July 2027, full negative gearing will only be available for new builds. The main arguments that drove this reform were:
- negative gearing fuels demand for investment properties, driving up prices and making it harder for first home buyers to enter the market.
- negative gearing disproportionately benefits higher-income investors who use multiple properties to reduce their tax bill.
The counter-argument, that negative gearing helps younger investors enter the market and build retirement income, remains part of the ongoing debate. For now, the rules have changed and investors need to plan accordingly.
3 Tips for managing a negatively geared property:
Review you finances regularly
Keep a close eye on your financial situation. Regularly review your income, expenses, and cash flow to ensure you can comfortably cover any shortfalls. It’s important to have a financial buffer to manage unexpected maintenance costs or periods of vacancy.
Property market research
Keep up to date with the property market in the area around your property and broader economic trends. Understanding market conditions can help you anticipate changes in rental income and property values and make informed decisions about when to buy, sell, or adjust your investment strategy.
Seek professional advice
Talk to financial advisors, accountants, and property experts who have experience in negative gearing to help you navigate the complexities of property investment. They can also provide valuable information for negative gearing tax strategies under the new rules.
Need tax advice and guidance for your annual tax return? Get in touch with Etax. Our friendly accountants make sure your negatively geared property tax deductions are all accounted for on your annual tax return.
Negative gearing can help investors build long-term wealth, but it also carries financial risk. With major rule changes arriving in 2027, the best thing you can do is understand the new rules, review your cash flow regularly, stay informed about the market, and work with a qualified tax agent.
Frequently asked questions about negative gearing
Negative gearing is when an investment property costs more to own and run than it earns in rent. The losses are tax-deductible, which can reduce your overall tax bill.
It’s still available, but the rules are changing. From 1 July 2027, full negative gearing will only apply to new residential builds. If you purchase an established property after 12 May 2026, you can still carry forward losses to deduct against future rental income. However, you can no longer deduct them immediately against other income like wages.
Negative gearing offers the greatest tax benefit to higher-income earners, because the deduction reduces income that would otherwise be taxed at a higher rate.
With negative gearing, your property expenses exceed your rental income, creating a tax-deductible loss. With positive gearing, your rental income exceeds your expenses, generating taxable income.
If you owned the property before 12 May 2026, nothing changes. If you buy an established property after that date, you can still offset losses against residential property income and carry unused losses forward, but you cannot deduct them against wages or salary from 1 July 2027.
It depends on your financial situation, income level, and long-term goals. Negative gearing can reduce your tax bill and help build long-term wealth, but it requires regular cash-flow top-ups and carries risk if property values do not grow as expected. Always seek professional financial advice before investing.
A negative gearing calculator helps you estimate whether your investment property is negatively geared and by how much. It factors in your rental income, mortgage interest, and other expenses.
No. Negative gearing can also apply to other income-producing investments, such as shares, if the cost of borrowing exceeds the income earned.
