Negative Gearing Explained: How It Works for Australian Property Investors in 2026

Negative gearing is one of the most commonly discussed tax strategies in Australia. For people investing in rental property, understanding how gearing works is essential. This article is intended to provide general information about negative gearing australia and the outcomes for taxpayers.

Note: This is general information only, not independent financial advice. Check with a professional about your personal circumstances and individual objectives.

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What Is Negative Gearing?

Negative gearing in Australia refers to a situation where expenses incurred from owning an investment property exceed the rental income earned from that asset. When costs -- loan interest repayments, maintenance, council rates, insurance, depreciation, and other property related expenses -- are higher than what tenants pay, you are making a net rental loss.

For the complete breakdown, see our negative gearing guide. Use our free negative gearing calculator to run your own numbers.

This loss can offset your other income, such as salary or wages, which means your taxable income is reduced. People commonly use this strategy to reduce income tax on their tax return.

How Does Negative Gearing Work?

A Rental Property Example

You borrow money to buy a rental property for $650,000. Rental income is $520 per week ($27,040 per year). Total expenses -- interest on your loan, council rates, insurance, maintenance, depreciation -- generally add up to $38,500.

Your net rental loss is $11,460. If salary income is $95,000, you offset this loss to reduce taxable income to $83,540. At the 32.5 cent rate, this could reduce tax by $3,725 per year.

What Rental Expenses Can You Claim?

The Australian Taxation Office (ATO) allows people to claim deductions for costs and rental expenses commonly included:

• Loan interest repayments on investment property

• Council rates and insurance

• Managing and property management fees

• Maintenance and repairs

• Depreciation on buildings and assets

• Other property related expenses such as legal costs and land tax

Use our land tax calculator to find your obligations.

Negative Gearing vs Positive Gearing

Positive gearing arises when rental income from a rental property exceeds expenses, resulting in a net profit. Positive gearing means making money, but this income is included in taxable income, generally increasing the tax you pay.

Many people start with a negatively geared property. Over time, as rental income increases and loan interest reduces, the investment transitions to positive gearing. Both outcomes apply depending on circumstances, market conditions, and the interest rate.

Why Do People Use Negative Gearing in Australia?

Tax Benefits for Taxpayers

Negative gearing allows you to reduce taxable income. For people in higher tax brackets, the benefits of making a short-term loss can be significant. Taxpayers on the 37 cent or 45 cent rates find this strategy effective at reducing income tax.

Capital Gains Tax Discount

Investors accept a loss because they expect their investment property to increase in value long term. When you sell after 12 months, you may be subject to a CGT discount of 50 per cent -- only half the capital gain is included in your income. Use our capital gains tax calculator to estimate CGT.

The ATO provides information on how capital gains tax applies.

Building Long-Term Wealth Through Investing

Investing in property is a long-term strategy. Over time, income increases while your loan balance decreases, which means the loss reduces each year. After a period, a negatively geared asset often becomes positively geared, providing consistent income.

Risks of a Negatively Geared Property

Cash Flow Pressure

Owning a negatively geared property means making a loss. You need the ability to cover costs and expenses from other income. If circumstances change -- higher interest rate or losing your job -- the situation can become limited and difficult.

Asset Value May Not Increase

Gearing outcomes depend on the expectation that property will increase in value. Market conditions change, and there is no guarantee when you sell. Research the housing market and check demand before investing.

Will the Government Limit Negative Gearing?

There is ongoing talk about whether to limit negative gearing. Housing affordability commonly arises as a subject, and some people argue gearing contributes to higher housing costs. The Australian government has not limited it, but any change could impact property investment.

Is Negative Gearing Right for Your Situation?

The decision depends on personal circumstances, financial situation, and individual objectives. Account for these factors:

• Do you have consistent, higher income to offset the loss?

• Can you afford costs if the rental property is vacant?

• Have you researched market conditions and housing demand?

• Do you understand the risks and benefits?

• Are you investing for the long term?

If unsure, start talking to an adviser who can guide you through complex tax and finance outcomes for your situation.

How PropBoss Helps Property Investors

Managing a negatively geared property means tracking expenses, recording rental income, and making sure deductions are included on your tax return. PropBoss automates expense tracking, income recording, and depreciation for Australian property investors.

Also read our negative gearing vs positive gearing.

Frequently Asked Questions About Negative Gearing

Can You Negatively Gear Shares?

Yes. Negative gearing is not limited to property. If you borrow money to invest in shares and expenses exceed income earned, the net loss can offset other income on your tax return.

How Is a Net Rental Loss Recorded on Your Tax Return?

The loss is recorded on your tax return. The ATO guide describes how to apply it. You need to account for income and deductions for each investment property.

What Happens When You Sell a Negatively Geared Property?

When you sell, profit is subject to capital gains tax. If held for more than 12 months, the 50 per cent CGT discount may apply. The result is included in your income tax assessment for that year.

Summary

Negative gearing remains a widely used investment strategy in Australia. It allows people to reduce taxable income by offsetting property losses against wages and other income. The tax benefits are significant, but risks need careful consideration. Explore our blog for more guides on property investing.

Negative Gearing Statistics and Impact in Australia

Negative gearing is a popular strategy among property investors in Australia. Nearly 1.1 million Australian property investors reported a net rental loss in the 2020-21 financial year. As of April 2026, negative gearing relies on current Australian Taxation Office rules that allow losses to be offset against taxable income.

In the 2023-24 financial year, negative gearing is projected to reduce personal income tax revenue in Australia by $10.9 billion. In the 2014-15 financial year, negative gearing by property investors reduced personal income tax revenue in Australia by $6.7 billion, and this figure is projected to reach $12.3 billion in 2024-25.

The Grattan Institute estimated that negative gearing combined with the capital gains tax discount raises house prices by 1 to 2%. Negative gearing has been estimated to reduce existing property prices by 4.6% and new property prices by 4.6% if limited to new housing, according to a 2019 Deloitte Access Economics model. A 2015 report from the Senate Economics References Committee concluded that while negative gearing has some influence on housing affordability, the primary factor is a mismatch between housing supply and demand.

Positive gearing occurs when the rental income from an investment property exceeds the expenses associated with owning it, resulting in a net rental income that is subject to income tax at the individual's marginal rate.

The primary goal of negative gearing is that the eventual increase in the property's value will exceed the operational losses incurred over the years. Investors may accept short-term rental losses from negative gearing with the expectation that long-term capital growth will outweigh those losses when the property is sold. If the property is held for more than 12 months, owners are generally eligible for a 50% discount on any capital gains tax when sold.

A cash flow shortfall occurs when the costs of owning an investment property exceed the income it generates, requiring the investor to cover the difference. Interest rates can significantly impact cash flow management in negative gearing, with rising rates increasing the expense side of the equation.

The property investment market can be vulnerable to stagnation or declines, potentially resulting in long-term losses without the expected capital growth. Investment properties are considered illiquid assets, which can make selling them for cash quickly challenging if needed.

The strategy is more effective for high-income earners in the 37% or 45% tax brackets, as they receive a larger tax saving for every dollar lost.

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