What is Negative Gearing?

What negative gearing actually means

Negative gearing is what happens when the costs of holding an investment, mainly loan interest, but also things like maintenance, property management fees and depreciation, add up to more than the income it earns. That shortfall is a net loss, and under current tax rules it can be deducted against your other income, most commonly your salary, reducing the tax you pay.

It's a bet on the future rather than the present: you accept a loss now in exchange for the hope that long-term capital growth, plus the tax deduction along the way, more than makes up for it later. It applies beyond property too, shares bought with a margin loan or managed funds bought with borrowed money can be negatively geared the same way, though property is by far the most common use case in Australia.

Negative gearing vs positive gearing

They're opposite ends of the same idea. A negatively geared investment costs more to hold than it earns, creating a deductible loss. A positively geared one earns more than it costs, creating taxable income instead. Neither is automatically better: a positively geared property puts cash in your pocket now, a negatively geared one costs you money now for a shot at a bigger gain later. Which suits you depends on your income, tax rate, and how long you plan to hold the asset.

Major reform: what changes from 1 July 2027

This is the part anyone researching negative gearing right now needs to know. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses of Parliament on 25 June 2026, and it's the biggest change to negative gearing in decades.

From 1 July 2027, negative gearing is restricted for established, that is, not newly built, residential properties bought after 7:30pm AEST on 12 May 2026, Budget night. Losses on these properties can no longer be deducted against your salary or other unrelated income. Instead, they're quarantined: still usable, but only against income from residential property, including future rental income or a capital gain from that property, or carried forward to later years. It's a restriction on what the loss can offset, not a ban on the deduction existing in the first place.

Two big carve-outs. Properties you already owned, or bought, before 7:30pm on 12 May 2026 keep full negative gearing under the old rules indefinitely, they're grandfathered. New residential dwellings, broadly, newly built homes, are also exempt from the restriction and can still be negatively geared normally. The exact legal definition of a qualifying "new residential dwelling" was still being worked through further legislation as of publication, so if a new build is central to your plan, check the final rules before you commit. Shares, commercial property and other non-residential assets aren't affected by this change at all.

How this connects to capital gains tax

Negative gearing has always worked hand in hand with the capital gains tax discount: the annual tax saving is modest, and the real payoff has historically come from a discounted tax bill when you eventually sell. That discount is also changing from 1 July 2027, replaced for gains arising after that date by cost base indexation and a 30% minimum tax rate. See our capital gains tax glossary page for how that works. If you're weighing up a new property purchase, both changes need to be modelled together, not negative gearing on its own.

Worked example (current rules)

Say you buy an investment property for $650,000 with a 6% interest rate, fully borrowed. Annual rent comes to around $26,000, and annual costs, interest, management fees, rates, insurance and depreciation, add up to roughly $48,500. That's a net loss of about $22,500 for the year. On a $120,000 salary, deducting that loss brings your taxable income down to around $97,500, worth roughly $8,500 to $9,000 in tax saved at a 37% marginal rate. You're still out of pocket in cash terms though, since only part of that loss, the depreciation, doesn't actually leave your bank account.

This example reflects the current rules. Whether it still applies to a property you're considering depends entirely on when you buy it, and whether it's an established home or a new build, given the changes coming in from 1 July 2027.