Negative gearing
A rental whose deductible costs are more than its rent.
A rental property is negatively geared when its deductible costs — mostly the interest on the loan — are more than the rent it earns, so it makes a net rental loss. In Australia that loss can reduce your other income, such as salary — but from the 2027–28 income year the law limits this for established residential properties acquired after the 2026–27 Budget.
Now law, from the 2027–28 income year (Treasury Laws Amendment (Tax Reform No. 1) Act 2026, s 26-155, amended by the Tax Reform No. 2 Act 2026): for an established residential property acquired after 7:30pm AEST on 12 May 2026, a net rental loss can no longer reduce other income such as salary. It can be set against residential rental income and, in the capital gains calculation, against capital gains; the rest carries forward to later years. Properties acquired before the cut-off are grandfathered, and new residential dwellings are exempt. For a purchase under a contract, the contract date — not the settlement date — decides which side a property is on.
Worked example
Rent of $24,000 against $26,000 of loan interest and $5,000 of rates, strata and insurance is $31,000 of costs and a $7,000 net rental loss. Under the current rules that $7,000 comes off your taxable income; at a 30% marginal rate it is worth $2,100 — which means the property still cost you $4,900 after tax.
Common mistake
Counting the whole loan repayment as the cost. Only the interest is deductible; the part of a repayment that pays the loan down is not a rental cost at all, so a loss worked out from repayments is overstated from the start.
Grounded in ATO — Tax reform: negative gearing and capital gains tax guidance. Figures last checked . General information, not tax advice.
Related terms
Rental schedule (rental property schedule)
Where each rental’s income and expenses are reported.
Apportionment
Dividing a shared cost so only the income-earning share is claimed.
CGT discount (50%)
Hold an asset over 12 months and only half the gain is taxed.
Depreciation (decline in value)
Claiming the cost of a big asset gradually over its life.
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Questions about this term
Negative gearing: common questions
- What changed for negative gearing after the 2026–27 Budget?
- It is now law. From the 2027–28 income year, a net rental loss on an established residential property acquired after 7:30pm AEST on 12 May 2026 can’t reduce other income such as salary; it can be used against residential rental income and capital gains, and the rest carries forward. The rule is s 26-155 of the Income Tax Assessment Act 1997, inserted by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and amended by the Tax Reform No. 2 Act 2026 (assented 26 August 2026).
- Does the negative gearing change touch a rental I already own?
- Not if you contracted to buy it before 7:30pm AEST on 12 May 2026 — the law grandfathers those properties, and new residential dwellings are exempt whatever the date. The contract date is what matters, so a property contracted on the day itself depends on the time the contract was made. The Tax Reform No. 2 Act extends the grandfathering in some cases, such as a home inherited from a spouse who bought it before the cut-off.
- Is the principal part of a loan repayment included in a rental loss?
- No. Only the interest on the loan is a rental cost; the part of each repayment that pays the balance down is not deductible. The interest usually appears as its own monthly charge on the loan account, and that charge — not the repayment from your everyday account — is the figure a rental loss is built from.
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