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What is negative gearing on an investment property?
Negative gearing means an investment bought with borrowed money earns less than its tax-deductible costs, including interest. A rental then has a net loss for tax. The tax rules decide how that loss can be used. A legislated change starts on 1 July 2027 for established homes bought after the 2026 announcement cutoff.
Updated
What makes a borrowed-property investment negatively geared?
Costs you can claim, including interest on money borrowed to earn rent, exceed the rental income. That leaves a tax loss. Paying back the loan principal, or debt itself, uses cash but is not a rental deduction.
Under current rules, an eligible net rental loss can reduce other taxable income. The tax effect depends on the owner. Depreciation is a deduction for eligible building or asset costs over time. It can add to a tax loss without a cash payment that year. So the loss and the cash gap can differ.
What changes for established homes from 1 July 2027?
The change is law. It covers established residential investment homes bought after 7:30pm AEST on 12 May 2026. From 1 July 2027, losses on those homes can reduce residential property income and gains. They cannot reduce wages.
Homes held at that cutoff keep their current negative gearing treatment. Newly built homes are exempt from the restriction. For affected established homes, unused losses can be kept for use against eligible residential property income and gains in later years. The buying cutoff decides which homes are affected. The start date decides when the new loss rule begins.
Does a deduction make the rental loss disappear?
No. A deduction does not repay a bill. You still need to fund costs the rent cannot cover. The value and timing of any tax benefit depend on which income the loss is allowed to reduce.
Gearing describes the result of income less costs on a borrowed-money investment. It does not show property quality or promise a later gain. A rental can lose money while its value stays flat or falls. The tax label does not tell you whether the purchase will give a positive overall result.
Illustrative example4 steps
A rental loss before any individual tax calculation
- Annual rent received: $32,000.
- Assume $27,000 of eligible loan interest and $11,000 of other deductible rental expenses.
- Total deductions: $27,000 plus $11,000 = $38,000.
- Rental result: $32,000 minus $38,000 = a $6,000 loss, before applying the owner's loss-use rules.
For investors
The loss amount and where it can be used are separate facts.
The same rental loss can have a different tax result for two owners. Their purchase dates or the type of home may differ. The 2027 start date does not shift the May 2026 buying cutoff. Keeping the contract date and cost records helps show which rules apply. A registered tax agent or accountant can check the timing, type of home and how its loss is treated.
Common questions
Questions about negative gearing
Keep learning
Property is a complex world.
Negative gearing is one piece of it. Taxes and duties decide what a property really costs to buy and to hold. Next, read about positive gearing, holding costs and depreciation schedule.
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