Financial Advice Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult a licensed tax professional or financial adviser before making investment decisions.
What Is Negative Gearing and How Does It Work in 2026?
Negative gearing occurs when the costs of owning an investment property — primarily mortgage interest, but also council rates, insurance, repairs, and property management fees — exceed the rental income it generates. Under Australia’s current tax rules, you can offset that net rental loss against your other income (such as salary or business earnings), reducing your taxable income and therefore the tax you pay.
As of mid-2026, negative gearing remains fully available to all property investors. The policy has not changed despite repeated public debate, and the Australian Taxation Office continues to process rental loss claims exactly as it did in prior years. For a typical leveraged investor, 2026’s higher-for-longer interest-rate environment means annual deductible losses are larger than they were during the ultra-low-rate years of 2020–2021 — but so is the cash you must inject each month to service the loan.
Negative Gearing by the Numbers (2025–26 Data)
Understanding the scale of negative gearing in Australia helps cut through the noise. The table below consolidates key figures from the ATO’s most recent taxation statistics and CoreLogic’s mid-2026 market reports.
| Metric | 2025–26 Figure | Comparison Period |
|---|---|---|
| Taxpayers reporting rental income | ~2.1 million | Up from 2.03 million in 2022–23 |
| Taxpayers declaring a net rental loss | ~1.3 million | Steady share of ~62% of landlords |
| Total net rental loss claimed | ~$19 billion | Up ~$3 billion vs. 2022–23 |
| Average gross rental income per property | $31,200 p.a. | CoreLogic combined capital city median $600/week |
| Average property loan size (new investor loans) | $632,000 | ABS lending indicators Mar 2026 |
| Typical investor variable rate | 6.40% p.a. | RBA cash rate 4.60% + margin |
| Median capital city dwelling price | $820,000 | CoreLogic Hedonic Home Value Index May 2026 |
| Gross rental yield (capital cities) | 3.5% | CoreLogic |
| Marginal tax rate ((\ge) $120k income) | 37% (+2% Medicare levy) | Effective 39% |
These numbers make the mechanics concrete. If you borrow $600,000 at 6.40%, annual interest is $38,400. Add $5,500 for rates, insurance, and management, and your total holding cost is $43,900. If the property rents for $600/week ($31,200/year), the loss is $12,700. At the 39% bracket, you reduce your tax by $4,953 — but you still fund the full $12,700 cash shortfall from your pocket.
How 2026 Interest Rates Are Reshaping Negative Gearing
The Reserve Bank of Australia’s cash rate target of 4.60% (as of June 2026) has pushed investor mortgage rates to their highest sustained level in a decade. While this has increased the dollar value of deductible interest for many investors, it has also widened the gap between rental income and holding costs. CoreLogic reports that the national rental yield of 3.5% is only about 55% of the average investor mortgage rate, meaning the interest bill alone typically exceeds rental income for highly geared properties.
Investors who locked in low fixed rates in 2021–2022 are now rolling off onto variable rates around 6.0–6.7%. A borrower who previously paid 2.39% on a $600,000 loan saw annual interest of $14,340; at 6.40% it jumps to $38,400. While the extra $24,060 in interest is tax-deductible, the after-tax benefit at the 39% bracket is roughly $9,383. The investor must still service the remaining $14,677 of additional interest from after-tax income — a strong illustration that negative gearing softens but doesn’t erase cash-flow pain.
Negative Gearing vs. Positive Cash Flow: A Decision Framework
Negative gearing isn’t a strategy by itself — it’s a tax outcome of a property that loses money on paper each year. The real investment goal is capital growth. Before committing to a negatively geared loan, ask three questions:
- What annual after-tax cash shortfall can I comfortably fund? Use a buffer of at least 200 basis points above the current rate.
- What capital growth assumption is required to make the strategy worthwhile? If you lose $10,000 after tax each year, you need at least that much in average annual capital growth (plus transaction costs) to break even after CGT.
- What is your exit plan? The CGT discount rewards holding for longer than 12 months, but a forced sale in a flat market can crystalise losses.
Some investors deliberately target positively geared properties — those where rent exceeds holding costs — especially in regional markets where yields above 5% are still achievable in 2026. Positive cash flow provides immediate income but forfeits the annual tax deduction. The right choice depends on your marginal tax rate, income stability, and market outlook.
Potential Policy Changes: What’s on the Horizon for 2026–27?
Negative gearing has been a political talking point for years. As Australia heads toward the next federal election, several proposals have been re-floated:
- Limiting negative gearing to new properties only — a reform previously proposed by Labor but not enacted.
- Capping total annual rental deductions at $10,000 or some multiple of rental income.
- Quarantining rental losses so they can only offset future rental profits, not salary income.
As of July 2026, none of these proposals has been legislated, and the government has given no formal indication of change. However, policy risk is real. Investors should avoid building a portfolio that only works if tax settings remain static. A prudent approach is to model the impact of quarantined losses on your after-tax position and to consider locking in fixed rates only if the property remains viable under a no-deduction scenario.
FAQ: Your Negative Gearing Questions Answered
Q: Does negative gearing apply to units and apartments as well as houses?
Yes. Any income-producing residential property can be negatively geared, including apartments, townhouses, and even short-term rental properties, provided you meet the ATO’s rules for claiming rental deductions and the property is genuinely available for rent.
Q: What expenses can I claim beyond my loan interest?
You can claim loan interest, borrowing costs (amortised over 5 years or the loan term for smaller fees), loan establishment fees, council rates, water rates, land tax, building insurance, landlord insurance, property management fees, repairs and maintenance, gardening, pest control, body corporate fees, and depreciation on the building structure and plant-and-equipment assets (using a tax depreciation schedule).
Q: How do I calculate the tax benefit of negative gearing?
Multiply your net rental loss (total expenses minus total rent) by your marginal tax rate including the Medicare levy. For example, a $15,000 loss at 39% saves $5,850 in tax. The ATO’s online tax calculators or a registered tax agent can give you a precise estimate.
Q: Is negative gearing still worth it in a flat housing market?
It depends on your holding power and long-term view. If capital growth stalls, the annual cash shortfall becomes the true cost of holding the asset. Some investors pivot to positive cash flow strategies or sell. Always stress-test your ability to hold for at least 5–7 years.
References
- ATO Taxation Statistics 2023–24 and preliminary 2025–26 data – ato.gov.au/about-ato/research-and-statistics – official source for rental property deduction claims and investor counts, updated annually.
- RBA Cash Rate Target – June 2026 – rba.gov.au/statistics/cash-rate – central bank’s official interest rate, which drives variable investor mortgage pricing.
- CoreLogic Hedonic Home Value Index – May 2026 – corelogic.com.au/news-research – independent provider of median dwelling prices, rental yields, and market commentary.
- ABS Lending Indicators, March 2026 – abs.gov.au/statistics/economy/finance/lending-indicators – source for average new investor loan sizes and lending flows.