Negative Gearing
Explained: Australia 2026
Over 2 million Australians use negative gearing. Is it worth it? This guide shows exactly how it works, with real numbers at every tax bracket.
1. How Negative Gearing Works
Negative gearing is simple: your investment property costs more to hold than it earns in rent. The "loss" reduces your taxable income from your salary.
Example: $600K Investment Property
Rental income: $26,000/year ($500/week)
Expenses: mortgage interest ($31,200 at 5.2% on $600K), rates ($2,500), insurance ($1,800), management ($2,080), maintenance ($2,000), depreciation ($5,000)
Total expenses: $44,580
Annual loss: -$18,580 → deducted from your salary income
Try it · 2025-26 brackets
Your tax saving from a rental loss
Drag the sliders to see how a rental loss reduces your tax bill at your bracket. For depreciation, 10-year cash-flow projection, and CGT on sale, use the full negative-gearing calculator.
Effective rate
32.0%
marginal + Medicare
Tax saved
$5,946
per year
True cost
$12,634
out of pocket / year
At $120,000 taxable income, an $18,580 rental loss reduces your tax bill by $5,946 — leaving $12,634 as your true out-of-pocket holding cost. Whether that's worth it depends on capital growth — see §4 below.
2. Tax Savings by Bracket
The higher your marginal tax rate, the more valuable the tax deduction.
| Taxable Income | Marginal Rate | Tax Saved on $18.5K Loss | True Cost |
|---|---|---|---|
| $18,201 – $45,000 | 16% | $2,973 | $15,607 |
| $45,001 – $135,000 | 30% | $5,574 | $13,006 |
| $135,001 – $190,000 | 37% | $6,875 | $11,705 |
| $190,001+ | 45% | $8,361 | $10,219 |
Includes Medicare levy (2%). True cost = Annual loss minus tax saving. Higher bracket = lower true cost.
3. Deductible Expenses
You can claim these costs against your rental income:
Mortgage Interest
On the investment loan only — not principal repayments
Depreciation (Building)
2.5% per year for buildings constructed after September 1987
Depreciation (Fittings)
Carpet, blinds, appliances, hot water — diminishing value method
Council & Water Rates
Annual council and water rates for the property
Property Management
6-8% of rent if using a property manager
Landlord Insurance
Covers tenant damage, loss of rent, liability
Repairs & Maintenance
Fixing existing items (not improvements — those are capital costs)
Accounting Fees
Cost of preparing rental income tax return
4. The Capital Growth Equation
Negative gearing only makes sense if capital growth exceeds your after-tax holding cost. Here's what that looks like:
5-Year Scenario: $600K Property at 5% Annual Growth
Value at year 5: $765,769 → Capital gain: $165,769
After 50% CGT discount (37% bracket): CGT payable ~$30,667
Total holding costs over 5 years (after tax savings): ~$58,525
Net profit after CGT and holding costs: ~$76,577
Effective annual return on your cash outlay: ~26%/year (leveraged)
The risk: if capital growth is 0-2%, negative gearing becomes a genuine loss. You're paying real money to hold an asset that isn't appreciating. Location selection is critical.
5. When to Avoid Negative Gearing
- Low tax bracket ($45K or under) — The tax saving is only 16%, so your true out-of-pocket cost stays high
- No capital growth potential — If the area has flat or declining property values, the tax saving won't compensate for the holding cost
- Cash flow stress — The property loss comes out of your budget every week. If you can't comfortably absorb $200-400/week, consider positive gearing (where rent exceeds costs)
- Policy uncertainty — Reform has been proposed before (1985, 2016, 2019) and could be again. See §6 below for where the 2026 debate actually stands.
6. Negative Gearing Changes 2026: Where the Debate Stands
The most-asked negative-gearing question of 2026 isn't whether it works — it's whether it's about to change. Here's the factual position at the time of writing, not a prediction.
Status as at June 2026
- No legislation has been introduced to reform negative gearing or the 50% CGT discount.
- The 2024 Treasury housing-affordability review modelled the impact of restricting negative gearing but did not recommend reform.
- The bipartisan position remains: rules unchanged.
- Past reform proposals (Labor 2016 + 2019, both unsuccessful) included grandfathering — existing investment properties would have kept the old rules indefinitely.
For the full policy record — the 1985–87 Hawke-era restriction, the 2016 and 2019 Labor platforms, the 2024 Treasury review, and how grandfathering would mechanically work if a future reform happened — see our grandfathering negative gearing explainer.
What this means if you're buying in 2026: the rules you buy under today are the rules in force today. If a future reform followed the historical pattern, it would grandfather existing investments. A property purchased for tax-timing reasons can still underperform on fundamentals, so decisions should be based on yield, location, cash flow, and your investment horizon — not speculation about hypothetical policy changes. For the upfront costs, our stamp duty calculator covers state-by-state duty; for ongoing repayments, the mortgage calculator handles principal + interest at current rates.
7. Negative Gearing vs Positive Gearing
| Factor | Negative Gearing | Positive Gearing |
|---|---|---|
| Cash flow | Negative (you pay each week) | Positive (rent exceeds costs) |
| Tax effect | Reduces taxable income | Increases taxable income |
| Capital growth focus | High — relies on appreciation | Lower — income-focused |
| Risk | Higher — needs growth to profit | Lower — cash flow positive |
| Best for | High-income earners, growth areas | Any bracket, regional/high-yield areas |
Calculate Your Property's True Cost
Our negative gearing calculator shows your exact tax saving, true out-of-pocket cost, and capital growth projection — personalised to your salary and property.
❓ Frequently Asked Questions
What is negative gearing in Australia?
Negative gearing means owning an investment property where the costs (mortgage interest, maintenance, depreciation, insurance, council rates) exceed the rental income. The resulting 'loss' is deducted from your other taxable income (salary, wages), reducing your overall tax bill. It's a tax strategy used by over 2 million Australian property investors.
Is negative gearing worth it in 2026?
It depends on your marginal tax rate and capital growth expectations. At the 37% marginal rate ($120K salary), a $10,000 annual property loss saves $3,700 in tax — meaning your true out-of-pocket cost is $6,300. If the property appreciates by 5%+ per year, the capital gain (taxed at a 50% CGT discount) may far exceed your annual out-of-pocket cost.
Are negative gearing rules changing in 2026?
As of June 2026, no legislation has been introduced to change negative gearing or the 50% CGT discount. The 2024 Treasury housing-affordability review modelled the impact of restricting negative gearing but did not recommend reform. The current bipartisan position is no immediate change. Previous reform proposals (Labor 2016 and 2019, both unsuccessful) included grandfathering — existing investment properties would have kept the old rules indefinitely. This is a factual summary of the public record, not a prediction.
What costs can you claim under negative gearing?
Deductible expenses include: mortgage interest (not principal), council rates, water rates, strata fees, property management fees (6-8% of rent), insurance, repairs and maintenance, depreciation on building (2.5%/yr for post-1987) and fittings (diminishing value method), travel to inspect (limited), accounting fees.
What is the 50% CGT discount?
If you hold an investment property for 12+ months before selling, you only pay capital gains tax on 50% of the gain. Example: buy at $500K, sell at $700K after 5 years. Gain = $200K. Taxable gain = $100K (50% discount). At 37% marginal rate, CGT = $37,000 — an effective rate of 18.5% on the full gain.
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