Last reviewed September 2026 by Megan Birot, Content Editor, OurTop10. Figures checked against the sources named in the article.Negative gearing is when a rental property costs you more to hold than it earns, and you claim that loss against your salary at tax time. It has been the backbone of Australian property investing for forty years, and the May 2026 federal budget changed it for anyone buying from now on. This guide covers how it works, what changed, who is affected, and what the numbers look like on a real property, with a calculator further down that runs your own figures under both the old and the new rules.
What negative gearing is
You borrow to buy a rental property. The rent comes in, and the interest, rates, insurance, agent fees, repairs and depreciation go out. If the outgoings are larger than the rent, the property is negatively geared: it runs at a loss. Under the rules that have applied since 1985, that loss is deducted from your other income, which reduces the tax you pay, and the Tax Office effectively refunds part of the loss to you.
The bet an investor is making is simple. They accept losing money every year on the running costs, softened by the tax refund, because they expect the property to be worth more when they sell than the losses added up along the way. When prices rise, it works. When they do not, the investor has paid to hold an asset that went nowhere.
A worked example
Take a $750,000 unit bought with a $600,000 loan at 6.1%, rented at $650 a week, owned by someone earning $110,000.
- Rent: $33,800 a year
- Interest: $36,600 a year
- Rates, strata, insurance, management, repairs: $9,000 a year
- Depreciation claimed: $6,000 a year
- Loss for tax purposes: $17,800
At a 30% marginal rate plus the 2% Medicare levy, that loss is worth $5,696 back at tax time. The real cash shortfall, ignoring depreciation because it is not money out of pocket, is $11,800 a year. After the refund, holding the property costs about $6,100 a year, or $117 a week. That is the number to have in mind: negative gearing does not make the property free, it makes the loss smaller.
One cost people often leave out of this sum is land tax, which kicks in once your investment land passes the state threshold. Our land tax calculator works it out for every state.
What changed in the May 2026 budget
On 12 May 2026 the government announced the largest change to property tax in a generation, and the measures have since passed into law. Three things matter, and which one applies to you depends on when you bought.
If you owned the property before 7:30pm on 12 May 2026
Nothing changes. Properties held at that moment, including ones under contract and waiting to settle, keep full negative gearing until they are sold, and keep the 50% capital gains discount on gains built up to 30 June 2027. Gains after that date are taxed under the new method described below.
If you buy an established property after 12 May 2026
You can still negatively gear it against your salary until 30 June 2027. From 1 July 2027 the loss is quarantined: it can only be offset against rental income from residential property, including other properties you own, or against the capital gain when you sell. Any loss that cannot be used is carried forward to later years. It is not lost, but it no longer reduces the tax on your wage each year, which is the part most investors were relying on.
If you buy a newly built home
New builds are exempt. A property that adds to housing supply, such as a new apartment, a house-and-land package or a subdivision that adds dwellings, keeps full negative gearing against your salary and keeps the 50% capital gains discount. A knock-down rebuild of a single home does not count. This is the government’s lever to push investors toward new supply, and it is why the choice between an established unit and a new one now has a tax consequence attached.
The capital gains change
For gains that accrue after 1 July 2027 on properties other than new builds, the 50% discount is replaced by inflation indexation of what you paid, and the gain is taxed as income with a minimum rate of 30%. In plain terms: you are only taxed on growth above inflation, but you pay at least 30% on it even if your other income is low. A property worth $1.5 million on 1 July 2027 and sold for $2 million later has the first part of its gain taxed the old way and the last $500,000 the new way.
Negative gearing calculator: your weekly cost after tax
Enter the property and your income. The calculator shows the loss, the tax refund, and what the property really costs you each week, under the rules that apply to when you bought.
Built by OurTop10. Results are estimates for comparison only and are not credit advice. Figures stay in your browser and are not sent anywhere.
How the tax refund actually works
The refund is your loss multiplied by your marginal tax rate, which is the rate on the last dollar you earn. For 2026-27 the rates are 15% on income between $18,201 and $45,000, 30% to $135,000, 37% to $190,000 and 45% above that, plus the 2% Medicare levy. An investor on $80,000 gets 32 cents back for each dollar of loss. An investor on $200,000 gets 47 cents. The same property, the same loss, and a very different subsidy, which is the argument that has always been made against the scheme and the reason the May 2026 changes targeted it.
Depreciation is the part people forget. The building and its fittings lose value on paper each year, and a quantity surveyor’s report lets you claim that decline as a deduction without spending a cent. On a newer property it can be $8,000 to $15,000 a year and it often turns a property that is cash-flow neutral into one that is negatively geared for tax purposes. On older properties the building allowance is usually gone and only fittings remain. The investment property tax guide covers every deduction, depreciation and the capital gains rules in detail.
Negative gearing and your loan
Lenders do not care about the tax refund. When they assess an investment loan they count the rent at around 80% of the agreed figure, add the full repayment at 3 percentage points above the actual rate, and expect your other income to cover the gap. A property that costs $117 a week after tax may cost $250 a week in the lender’s servicing calculation, and that is the number that decides whether you get the loan. Investment loan rates also sit 0.2 to 0.5 percentage points above owner-occupier rates, and interest-only terms, which most investors use to keep the deductible interest high, are assessed on the repayment that starts when the interest-only period ends.
Negative gearing versus positive gearing
A positively geared property earns more rent than it costs to hold. You pay tax on the surplus instead of claiming a loss, and you are not relying on price growth to come out ahead. Regional houses, older units with low strata and properties bought with a large deposit are the usual candidates. Since the budget, positive gearing has become the natural home for investors buying established property, because the loss is no longer worth what it was. Our guide to positive gearing covers how to find it, and our rental yield guide explains the number that decides which side of the line a property falls on.
Who negative gearing still suits
It suits investors who already own established property, whose treatment is unchanged, and investors on high marginal rates buying new builds, who keep the full deduction and the full discount. It suits far less anyone buying an established home from now on with the expectation that the tax refund makes the shortfall manageable, because from July 2027 that refund is gone and the loss sits in a drawer until there is rental profit or a sale to use it against.
The risks have not changed. Interest rates can rise, as they did thirteen times between 2022 and 2023. Tenants leave. Strata schemes raise special levies. And the growth that justifies the annual loss is an expectation, not a promise. Our quarterly Mortgage Stress Report tracks how many investor households are under pressure each quarter.
What to do next
Run your own numbers in the calculator above under both sets of rules, then test the before-tax shortfall against your monthly budget with the rate one point higher. If it still works, an investment loan broker can tell you which lenders will count the rent and which will not. Our ranked broker lists for Sydney, Melbourne and Brisbane are reviewed regularly, our guide to buying an investment property covers the rest of the decision, and the full negative gearing calculator models a whole holding period year by year.
FAQs About Negative Gearing in Australia
No. It is being limited. From 1 July 2027, losses on established residential property bought after 7:30pm on 12 May 2026 can only be offset against rental income or capital gains, not against your salary. Properties owned before that date and newly built homes keep full negative gearing.
Nothing changes for that property. You keep negative gearing against your salary until you sell it, and the 50% capital gains discount applies to the gain built up to 30 June 2027.
Yes. A property that adds to housing supply, such as a new apartment, house-and-land package or subdivision adding dwellings, keeps full negative gearing and the 50% capital gains discount. A knock-down rebuild of one home does not qualify.
Your loss multiplied by your marginal rate plus Medicare levy. On a $17,800 loss, an investor on $110,000 gets about $5,700 back; an investor on $200,000 gets about $8,400. The refund arrives after you lodge your return, not month by month.
For gains after 1 July 2027 on properties other than new builds, the 50% discount is replaced by inflation indexation of your cost base, and the gain is taxed as income with a minimum rate of 30%. Gains before that date keep the old discount.
For property already owned and for new builds, the maths is unchanged. For established property bought from now on, the annual refund disappears in July 2027, so the property has to stand on its rent and its growth alone. Run the numbers before tax first.
Megan Birot
Content Editor, OurTop10
Megan Birot is OurTop10’s Content Editor. She holds a Certificate IV in Finance and Mortgage Broking (FNS40821) and checks every guide on the site against current lender policy, government scheme rules and state revenue office thresholds before it goes live.
She also runs the editorial reviews on OurTop10’s broker, accountant, conveyancer and buyer’s agent shortlists, and writes the media releases for its quarterly mortgage stress research.