What is negative gearing?

When deductible expenses on an investment property exceed rental income, the loss can offset other taxable income. The mechanics and where it pays off.

5 min read·Reviewed 9 July 2026·Ratesniffers Editorial Team

How it works

If that's negative, the loss flows through to your personal tax return. It reduces your total taxable income, lowering the tax you pay on your salary or other income.

Worked example

$500K interest-only investment loan at 6% = $30,000/year interest. Property rents for $500/wk = $26,000/year gross rent. Other expenses (rates, strata, insurance, agent) = $6,000. Depreciation on a relatively new build = $8,000. Net loss = $30K + $6K + $8K − $26K = $18,000 loss.

Investor's marginal tax rate is 39% (income $135K-$190K bracket including Medicare). $18K loss × 39% = $7,020 tax saving. So the actual cash drain after tax is $18,000 − $7,020 = roughly $10,980, about $211/wk.

Why it only works for higher earners

The tax saving scales with your marginal rate. At the 19% bracket, an $18K loss saves $3,420, your cash drain is $14,580/year. Negative gearing makes financial sense only when your salary is high enough (typically $100K+) AND you expect capital growth to outpace the cash losses.

The 2026 changes: does negative gearing still apply?

Whether a specific property qualifies turns on contract dates and how the property is classified, and the detail is still settling. Treat the worked example above as the long-standing mechanics, and confirm your own eligibility with your accountant before relying on a negative-gearing benefit for a purchase after 12 May 2026.

General information only, not tax advice. The post-12-May-2026 rules are new and depend on your specific contract and property type, so confirm with your accountant.

What is negative gearing?: frequently asked questions

How it works

Negative gearing isn't a separate tax scheme, it's just the result of your investment property running at a tax loss. Rental income (gross rent) minus deductible expenses (interest, depreciation, rates, agent fees, R&M, insurance) = net rental position. If that's negative, the loss flows through to your personal tax return. It reduces your total taxable income, lowering the tax you pay on your salary or other income.

Why it only works for higher earners

The 2026 changes: does negative gearing still apply?

Changes announced in the May 2026 federal budget limit the ability to offset rental losses against other income for established residential properties bought after 12 May 2026. New builds are excluded from the limit under the current rules, and many off-the-plan purchases fall into the new-build category, so they can generally still be negatively geared in the usual way. Whether a specific property qualifies turns on contract dates and how the property is classified, and the detail is still settling. Treat the worked example above as the long-standing mechanics, and confirm your own…

References

ATO: Rental expenses you can claim now, Deductible interest, depreciation, and operating expenses
ATO: Negative gearing, ATO definition and worked examples
Treasury: Tax expenditures and insights statement, Federal context on negative-gearing fiscal cost

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