Negative Gearing in Australia: How It Works and What Changes in 2027

So how does negative gearing actually work?

It’s the question we get more than almost any other, and it’s surrounded by nonsense. Negative gearing is a tax strategy, used mostly on investment property. You can do it with shares too, but that’s a different article.

The idea in one line: you own a property that costs more to hold than it earns in rent, and the shortfall comes off your taxable income.

Thinking about an investment purchase before the rules change? Email startnow@sorenfinancial.com and we’ll show you what you can borrow and what the holding costs actually look like month to month.

The 2026 Budget changed the rules — here’s what’s confirmed

The 2026-27 Federal Budget announced the biggest change to property tax in a generation. The start date is 1 July 2027, so nothing has changed yet, but what you buy between now and then decides which set of rules you live under.

• Already own it? Properties held at the announcement — 7:30pm AEST on 12 May 2026 — are exempt from the negative gearing change. Nothing changes for those.
• Buying an established home after that date? From 1 July 2027 you can still deduct rental losses, but only against residential property income. Unused losses carry forward to future years. You can’t offset them against your wages.
• Buying a new build? Negative gearing stays as it is. That’s the whole point of the change — push investor money toward new supply.
• Capital gains tax is changing too. From 1 July 2027 the flat 50% CGT discount is replaced with a discount based on inflation, plus a minimum 30% tax on gains. It only applies to gains that accrue after that date. Investors in new builds get to choose between the 50% discount and the new arrangements.

That last point matters and it’s the one most articles get wrong. A new build isn’t simply carved out of the CGT change — you get a choice between the old discount and the new system, and which one wins depends on how long you hold and what inflation does.

Confirmed against the 2026-27 Budget tax reform papers and the ATO’s new legislation guidance, September 2026. Talk to your accountant about your own position — this is general information, not tax advice.

What you can claim

You total the holding costs of the property, subtract the rent, and the shortfall reduces your taxable income. The usual costs are:

• Interest on the investment loan — normally the big one
• Council rates, land tax, strata and body corporate fees
• Repairs, maintenance, pest control, cleaning and gardening
• Landlord insurance
• Advertising to find tenants, and property management fees
• Your accountant’s fee for the lodgement
• Depreciation on the building and on some fixtures and fittings

Depreciation is why new apartments have always been popular with investors. Like a car, most of the depreciation happens early. You claim it, and then you make a decision: hold and pay the place down so it eventually pays you, sell if you’ve had the growth, or hold and buy the next one.

How many Australians are actually negatively geared?

Income year	Australians with a rental property	Reported a net rental loss
2021-22	2,268,161	949,519
2022-23	2,261,080	1,117,175

In the 2022-23 income year, 2,261,080 Australians declared an interest in a rental property, and 1,117,175 of them reported a net rental loss. That’s roughly half, and it’s up sharply from 949,519 the year before — which is what happens when interest rates climb and the interest bill outruns the rent.

So this isn’t a strategy for the wealthy few. It’s roughly one in every two landlords in the country, mostly people holding one property.

So what’s the catch with negative gearing? (Excuse the pun)

Easy. Greed.

You’re deliberately running at a loss to cut your tax. The tax saving is real, but you’re still out of pocket every month. That only makes sense if the property is growing in value faster than the loss is costing you, and if you have a plan to get it to pay for itself eventually.

Don’t borrow more than you can hold

The enquiry we see constantly: someone on $65,000 with one investment property already, wanting the next one. The numbers rarely work, and when they do it’s a cheap property in an area with nothing driving growth. That’s usually ego, not research.

The risk is being stretched too thin when the market moves against you. Suburbs are their own little markets. One can sit flat for years for reasons you can’t control — no transport, no jobs moving in, nobody who wants to live there. If that happens and the loan is bigger than you can comfortably carry, you wait it out whether you want to or not.

Negative gearing is a tool, not a plan. If your only strategy is to keep losing money on purpose, at some point the tax office stops being the problem and the bank starts.

Mansour Soltani, Director, Soren Financial

The bottom line

Negative gearing works, and for a lot of investors it’s the difference between holding a good property and not being able to. But the long-term aim should be a property that pays for itself, or is paid off. You don’t get there by structuring every purchase to lose money.

And with the rules changing on 1 July 2027, the question of new build versus established just became a much bigger decision than it used to be.

Speak to your accountant about the tax side — and if you don’t have one, we’ll introduce you to someone good. For the lending side, email startnow@sorenfinancial.com and we’ll run the numbers on what an investment purchase does to your borrowing power. If you want to know where rates are heading first, our research team publishes the OurTop10 Rate Prediction Index.

Last updated: November 2026. Reviewed by Mansour Soltani, Director and Credit Representative 527161, Soren Financial. General information only, not tax or financial advice.