Negative Gearing Guide for Australian Property Investors

What is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property exceed the rental income it produces. The resulting loss may reduce your taxable income, depending on the tax rules that apply.

How It Works

Rental income is offset against costs such as loan interest, maintenance, insurance and other deductible expenses. If those expenses exceed the income, a loss arises. Historically, that loss could be used to reduce your overall taxable income.

For example, a property generating $30,000 of rental income against $45,000 of expenses produces a net loss of $15,000. Under long-standing rules, that $15,000 loss reduced the investor’s assessable income for the year.

2026 Budget Changes

From 1 July 2027, negative gearing will be limited to new residential properties. Established properties acquired after 12 May 2026 will have their losses quarantined — meaning losses can only be offset against property income or capital gains, rather than other income such as salary and wages.

Key Differences

Existing properties remain unchanged, retaining full negative gearing. New builds also maintain full tax deductibility. It is newly acquired established properties that face restricted deductibility, with losses quarantined to property-related income.

To summarise: existing properties held before the 2026 changes keep full negative gearing; new builds keep full negative gearing; and newly acquired established properties have their losses quarantined.

Strategic Impact

The reforms shift investor focus toward new developments, reduce tax-driven demand for established properties, and increase the importance of long-term strategy over short-term tax benefits.

Key Risks

It is worth remembering that negative gearing reduces tax but does not eliminate the underlying loss. Investors still need to consider cash flow, interest rate movements and broader market conditions before relying on a negatively geared strategy.

Conclusion

Negative gearing remains relevant, but it has been reshaped by the 2026 Budget. Careful, strategic planning is essential for any new investment made under the updated rules.

This guide is general information only and should not be relied upon without professional advice.