Negative gearing is the most talked-about tax rule in Australian property, and in 2026 it finally changed. Investors now need to know two sets of rules: the ones that apply to their returns today, and the ones that start on 1 July 2027.
This guide explains how negative gearing works for 2025-26 and 2026-27, what the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 changes from 2027-28, and what a loss is worth at current tax rates. Everything was checked against the ATO, Treasury and the Federal Register of Legislation on 9 October 2026.
It is written for salary earners who own, or are thinking of buying, a rental property with borrowed money. For the expenses that create the loss, see our list of rental property deductions you can claim.
Key takeaways
- A property is negatively geared when deductible expenses exceed rent, creating a net rental loss.
- For 2025-26 and 2026-27, that loss can still reduce salary and other income.
- From 1 July 2027, negative gearing on residential property is limited to new builds; properties held before 7:30pm AEST 12 May 2026 are exempt.
- Losses on established homes bought after that time can only offset residential property income and capital gains from 2027-28, with excess losses carried forward.
- A $10,000 loss saves $3,200 at the 30% rate plus Medicare levy, and $4,700 at the top rate in 2026-27.
- The 50% CGT discount is replaced by an inflation-based discount and a 30% minimum tax for gains accruing from 1 July 2027.
Negative gearing rules at a glance
| Situation | 2025-26 and 2026-27 | From 1 July 2027 |
|---|---|---|
| Residential property held before 7:30pm AEST 12 May 2026 | Loss reduces all income | No change (grandfathered) |
| New build | Loss reduces all income | Loss reduces all income |
| Established residential property bought after 7:30pm AEST 12 May 2026 | Loss reduces all income | Loss offsets residential property income and capital gains only; excess carried forward |
| CGT on sale | 50% discount after 12 months | Inflation-based discount and 30% minimum tax on gains accruing from 1 July 2027; new builds can choose the 50% discount |
Source: ATO new legislation: reforming negative gearing and CGT, Treasury Budget 2026-27 tax changes and Treasury Laws Amendment (Tax Reform No. 1) Act 2026, checked 9 October 2026.
What is negative gearing?
The ATO describes a property as negatively geared when it is bought with borrowed money and the rent, after other expenses, does not cover the loan interest. The result is a net rental loss for the year. Its older negative gearing guidance explains the core rule: you can generally claim the full rental expenses against your rental and other income.
Positive gearing is the reverse. Rent exceeds expenses, the profit is added to your taxable income, and you pay tax on it at your marginal rate.
How do negative gearing tax benefits work now?
For 2025-26 and 2026-27, a net rental loss reduces your taxable income from salary, business and other sources. If your other income cannot absorb the loss, the ATO says the excess is carried forward to the next year.
The tax saved depends on your marginal rate. Using the ATO resident tax rates plus the 2% Medicare levy, a $10,000 loss that falls entirely within one bracket is worth:
| Taxable income bracket | 2025-26 rate + Medicare | 2026-27 rate + Medicare | Tax saved on $10,000 loss (2026-27) |
|---|---|---|---|
| $18,201 – $45,000 | 16% + 2% | 15% + 2% | $1,700 |
| $45,001 – $135,000 | 30% + 2% | 30% + 2% | $3,200 |
| $135,001 – $190,000 | 37% + 2% | 37% + 2% | $3,900 |
| $190,001 and over | 45% + 2% | 45% + 2% | $4,700 |
This ignores the Medicare levy low-income reduction. Either way, every dollar of loss still costs you more than the tax it saves.
What expenses create the loss?
- Interest on the loan used for the rental, usually the largest cost.
- Running costs: council rates, water, land tax, insurance, agent fees, repairs and body corporate fees.
- Borrowing expenses: loan establishment fees and similar costs are deductible, but spread over 5 years or the loan term if over $100, according to the ATO’s borrowing expenses page.
- Non-cash deductions: capital works and decline in value. Our rental property depreciation guide covers these.
Principal repayments, purchase costs and the private share of any loan are never deductible. For a fuller list, see what deductions rental property owners can claim and the ATO’s residential rental properties pages and Rental properties guide 2026.
What changes from 1 July 2027?
On 12 May 2026 the Government announced, as part of the 2026-27 Budget, that negative gearing for residential property would be limited to new builds. The ATO’s new legislation page says these measures are now law under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and a companion rates Act.
- Grandfathering: residential properties held before 7:30pm AEST on 12 May 2026 keep the existing rules.
- New builds: can still be negatively geared before and after 1 July 2027.
- Established property bought after the announcement: from 1 July 2027, losses can be deducted against residential property income, including capital gains, but not wages or other non-residential income. Excess losses carry forward.
- CGT: for gains accruing from 1 July 2027, the 50% discount is replaced by an inflation-based discount with a 30% minimum tax on capital gains. New build investors can choose either method. See our guide to calculating CGT on property.
Treasury has not published a definition of “new build” on the pages we checked, so confirm eligibility before relying on it for a purchase.
Worked example: Sarah’s rental loss in 2026-27
Sarah earns a $150,000 salary and has owned a rental unit since 2021, so it is grandfathered. Rent for 2026-27: $26,000.
Expenses: interest $30,000 + rates $2,500 + insurance $1,200 + management $2,080 + repairs $1,000 + capital works and decline in value $5,000 = $41,780. Net rental loss: $26,000 – $41,780 = -$15,780.
Taxable income falls from $150,000 to $134,220. Tax on $150,000 = $31,020 + 37% x $15,000 = $36,570, plus Medicare $3,000 = $39,570. Tax on $134,220 = $4,020 + 30% x $89,220 = $30,786, plus Medicare $2,684.40 = $33,470.40.
Tax saved: $39,570 – $33,470.40 = $6,099.60.
Cash cost: the $5,000 of capital works and decline in value is not a cash outlay, so her cash shortfall is $26,000 – $36,780 = -$10,780. After the tax saving, she is still $4,680.40 out of pocket for the year.
If Sarah had bought an established unit after 7:30pm AEST 12 May 2026, the same loss from 2027-28 could not reduce her salary. It would carry forward against future residential property income or capital gains.
Rule of thumb: Judge a negatively geared property on its after-tax cash cost and likely growth, not the tax refund. If you cannot comfortably fund the shortfall at higher interest rates, the tax saving will not rescue the investment.
Common mistakes with negative gearing
- Assuming the 2027 rules don’t apply. Established property bought after 12 May 2026 loses the salary offset from 2027-28.
- Claiming loan establishment fees in one year. They are borrowing expenses spread over 5 years or the loan term.
- Claiming interest on private redraws. Only the rental share of the loan is deductible.
- Ignoring the CGT end game. The 50% discount no longer applies to gains accruing after 1 July 2027 on most property. See when you pay capital gains tax on property.
- Waiting for a refund. Employees can apply for a PAYG withholding variation to get the benefit during the year.
FAQ about negative gearing
Is negative gearing still allowed in Australia?
Yes. For the 2025-26 and 2026-27 income years, a net rental loss can still reduce salary and other income. From 1 July 2027, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 limits negative gearing on residential property to new builds, but properties held before 7:30pm AEST on 12 May 2026 keep the current rules.
What happens to losses on an established property bought after 12 May 2026?
From 1 July 2027, Treasury says losses on established residential property bought after the Budget announcement can be deducted only against income from residential property, including capital gains. They cannot reduce wages or other non-residential income. Unused losses can be carried forward to future years. Until 1 July 2027, the existing rules apply.
What if my rental loss is bigger than my other income?
Under the current rules, the rental loss first reduces your other income for the year. If your other income is not enough to absorb the loss, the excess is carried forward to the next year as a tax loss. This most often happens in a year with little salary, such as parental leave or a career break.
Can I get the tax benefit during the year instead of at tax time?
Yes, if you are an employee. You can lodge a PAYG withholding variation application asking your employer to withhold less tax because of an expected rental loss. The ATO says online applications take about 28 days to process. You must reapply if your circumstances change, for example if you sell the property, and keep records for 5 years.
Is negative gearing worth it?
Only if the after-tax cash cost is affordable and the property’s long-term growth is likely to outweigh the losses. A $1 rental loss saves at most 47 cents in tax at the top 2026-27 rate including Medicare levy, so you are still out of pocket. Interest rate rises, vacancy and the 2027 CGT changes all affect the outcome, so model it first.
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This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO new legislation page on reforming negative gearing and capital gains tax, Treasury’s Budget 2026-27 tax changes page, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 on the Federal Register of Legislation, the ATO Rental properties guide 2026, ATO negative gearing, borrowing expenses and PAYG withholding variation pages, and ATO resident tax rates on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
