The short answer
Negative gearing means a rental property costs more to hold than it earns in rent, so it makes a loss each year. The deductible costs include loan interest, rates, insurance, repairs and property management. Under the rules in place now, a net rental loss can generally reduce the tax you pay on other income, such as your salary. The ATO says that from 1 July 2027 this is limited to new builds for residential property, and properties held at 7:30pm AEST on 12 May 2026 are exempt. This is general information, not tax advice. Ask a registered tax agent how it applies to you.
How negative gearing works
- Add up the rent. The rent the property earns over the year.
- Add up the deductible costs. Loan interest is usually the biggest. Others include council and water rates, insurance, repairs, property management fees and depreciation.
- Compare the two. If costs are higher than rent, the property has a net rental loss and is negatively geared.
- The tax side. Under the current rules, that loss can generally be set against your other income. Your tax agent works this out in your return.
A property earns $26,000 a year in rent. Interest, rates, insurance, repairs and management come to $33,000. It makes a net rental loss of $7,000.
The investor still pays the $7,000 shortfall out of pocket. Any tax benefit only gives back part of it, depending on their tax rate and the rules that apply to the property.
A simplified illustration only. It isn’t tax advice and doesn’t show capital growth or risks.
Negative, neutral and positive gearing
- Negatively geared: costs are more than the rent. The property makes a loss.
- Neutrally geared: costs and rent are about the same.
- Positively geared: rent is more than the costs. The property makes a profit, which is generally taxed as income.
The same property can move between these over time as rent, interest rates and the loan balance change.
What changes from 1 July 2027
On 12 May 2026, in the 2026–27 Federal Budget, the Government announced changes to negative gearing and capital gains tax. The ATO says these measures are now law and apply from 1 July 2027:
- Negative gearing for residential property investments is limited to new builds.
- Properties held at announcement (7:30pm AEST, 12 May 2026) are exempt from the negative gearing change.
- The 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax rate on capital gains.
- CGT changes apply only to gains that accrue after 1 July 2027.
So whether a property was held at 12 May 2026, and whether it’s a new build, will affect the tax outcome from 1 July 2027. The detail is in the legislation and the ATO’s guidance. A registered tax agent can tell you how it applies to a property you own or plan to buy.
Planning an investment purchase? We’ll help you structure the loan once your tax agent has looked at the numbers.
Book My Investor ChatThe risks
- You still lose money each year. A tax deduction reduces the loss; it doesn’t remove it. Many investors rely on capital growth, which isn’t certain.
- Interest rates. Higher rates raise the loss and the cash you need to cover it.
- Vacancies and repairs. A month without a tenant or a large repair adds to the shortfall.
- Rules change. The 2027 changes show tax settings can shift during the life of an investment.
Where the loan fits
How the loan is set up can affect what your tax agent is able to claim. Many investors keep investment borrowing in its own loan split, separate from their home loan and personal spending. Ask your tax agent what suits your situation. Interest-only or principal and interest repayments change both your cash flow and the interest you pay. Before you buy, check what you can borrow and how the repayments fit your budget with a cash buffer.
Who does what
A registered tax agent advises on deductions, gearing and CGT. A registered financial adviser advises on whether an investment suits you. As mortgage brokers, we compare lenders on our panel and set up the loan structure your plan needs. We don’t give tax or investment advice.
Source: Australian Taxation Office, “Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax”, last updated 29 June 2026, read 9 November 2026.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone or video, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.