Quick answer: negative gearing is not bad in itself, but it is a cost, not a profit. You cover the yearly shortfall and the tax deduction returns a share, so the property needs growth to make up the rest. From 1 July 2027 it is limited to new builds, with an exemption for homes held at 7:30pm AEST on 12 May 2026.
Updated 28 October 2026. Tax figures and rules checked on the Australian Taxation Office website the same day.
Key facts, checked 28 October 2026
Four dated facts shape the answer: the reforms that are now law, the 50% CGT discount that is being replaced, the tax rate that decides what a deduction is worth, and how a rental loss is reported. Each comes from an ATO page checked on 28 October 2026.
- These measures are now law. From 1 July 2027, negative gearing for residential property is limited to new builds, and properties held at 7:30pm AEST on 12 May 2026 are exempt (ATO, page updated 29 June 2026).
- From 1 July 2027 the 50% CGT discount is replaced with cost base indexation and a 30% minimum tax rate on gains that accrue after that date (ATO, page updated 29 June 2026).
- For 2026–27, resident tax is 30c for each $1 of taxable income from $45,001 to $135,000, 37c from $135,001 to $190,000 and 45c above that, plus the 2% Medicare levy (ATO, page updated 13 August 2026).
- A net rental loss is the net loss from any rental property you own, and you report it in your tax return (ATO net rental property loss instructions, published 27 May 2025).
What running a property at a loss means
A property is negatively geared when the rent does not cover the costs of owning it, mainly loan interest, rates, insurance and maintenance. The shortfall is a net rental loss. You fund it from your wages or savings, and the tax deduction returns a share of it, not all of it.
I just want to make this clear that negative gearing is not a strategy but an outcome. Negative gearing is used by investors to minimize their taxable income. It’s achieved by owning an investment property and renting it out for less than the mortgage repayments, insurance, and other associated costs of ownership. The loss incurred each year is then offset against any other income earned, such as salary or wages.
Example: what a $7,000 rental loss costs after tax
In this example a $7,000 yearly loss on a $500,000 property saves about $2,240 in tax for someone paying 30c in the dollar plus the 2% Medicare levy. That leaves the investor about $4,760 out of pocket each year. The figures are assumed, not a forecast, and your own tax position will differ.
Let’s say you purchase an investment property for $500,000 with a 20% deposit of $100,000. This leaves you with a loan of $400,000.
Assuming the interest rate on your loan is 5% and you pay interest and no principal, your annual mortgage repayments would be $20,000. But that’s not all – you also have to factor in the costs of ownership, such as insurance, council rates, and maintenance. Let’s say these come to a total of $5,000 per year.
This means your total yearly costs are $25,000 ($20,000 + $5,000). If the property rents for $18,000 a year, the loss is $7,000 ($25,000 – $18,000).
The loss can then reduce your other taxable income, such as your salary. If your taxable income is $90,000 before the loss, it falls to $83,000 ($90,000 – $7,000).
Now let’s imagine your rent is 25,000 which covers all your expenses. In this case, your investment property is not running at a loss. Though you’re not running at a profit either. So in this instance, you are not going to get any further tax savings as your rent has covered your expenses.
Now add tax. At $83,000 you are paying 30c on each extra dollar, plus 2c for the Medicare levy, so 32c in total (ATO 2026–27 rates). A $7,000 deduction reduces your tax by about $2,240 ($7,000 × 32%).
That leaves you about $4,760 out of pocket ($7,000 – $2,240) in every year the property runs at a loss. The deduction softens the loss; it does not remove it. The property has to grow in value by more than your after-tax losses and selling costs before you are ahead.
When does running at a loss make sense?
Running at a loss can make sense when the property has strong growth prospects, you can carry the shortfall comfortably, and you hold a buffer for higher interest rates or an empty month. It makes less sense when the loss strains your budget or you are counting on the tax deduction to rescue a weak property.
What are the risks of running a property at a loss?
The main risks are rising interest rates, a vacancy, unexpected repairs and a change in your income, because the shortfall must be paid whatever happens. A tax deduction does not help if your income stops, and cash you put into a loss is cash you cannot use for the next purchase.
Does negative gearing slow down building a portfolio?
Yes, it can. Lenders look at your repayments and income when you apply for the next loan, and every dollar of yearly shortfall is a dollar less for the next deposit or buffer. A property that covers its costs, or comes close, usually leaves you more room to keep buying.
What are the benefits of positive cash flow?
There are many benefits to having a positive cash flow, but the two main ones are that it gives you financial flexibility and it helps you weather market downturns. Both let you keep a property through changing conditions and leave your options open for the next purchase.
When your portfolio is generating positive cash flow, you have the flexibility to take advantage of opportunities as they arise. For example, you might be able to buy an extra property or two when prices are low or make improvements to your properties that will increase their value.
Positive cash flow also helps you weather market downturns. If rents start to fall or vacancy rates rise, you’ll still have enough money coming in to cover your costs. This can help you avoid having to sell your properties at a loss.
So if you’re looking to build a strong portfolio that will withstand the ups and downs of the market, focus on generating positive cash flow.
How to check whether a negatively geared property stacks up
Run the numbers for the actual property before you buy: rent, loan interest, rates, insurance, maintenance and vacancy. Work out the yearly shortfall after tax, check that you can carry it if interest rates rise, and ask whether the likely growth is worth that cost. Speak to an accountant and a mortgage broker first.
- Add up the yearly costs: loan interest, rates, insurance, repairs and management.
- Compare them with realistic rent, allowing for a few weeks empty each year.
- Work out your tax saving using your own marginal rate from the ATO rates, plus the Medicare levy.
- Test the loan at a higher interest rate and check you can carry the shortfall.
- Ask your accountant how the 1 July 2027 changes apply to the property, because the ATO page does not say what counts as a new build.
More questions about negative gearing
What is positive cash flow?
Positive cash flow means the rent is more than the yearly costs of owning the property, so it pays for itself and leaves a surplus. A property that earns more than it costs gives you room to cover rate rises and to keep investing.
What is the difference between positive and negative gearing?
A positively geared property earns more rent than it costs, and a negatively geared one costs more than it earns. Our guide to positive vs negative gearing compares the two side by side.
Does a rental loss reduce my tax?
In general a net rental loss can reduce your other taxable income, which lowers your tax by your marginal rate, but you still carry the rest of the loss. Your accountant can confirm how it applies to your return.
Should new and established properties be treated differently?
From 1 July 2027 negative gearing for residential property is limited to new builds, with an exemption for properties held at 7:30pm AEST on 12 May 2026. Read our guide to new vs established investment property before you choose.
Sources
- ATO: Tax reform boosting home ownership, reforming negative gearing and capital gains tax (last updated 29 June 2026, checked 28 October 2026)
- ATO: Tax rates for Australian residents (last updated 13 August 2026, checked 28 October 2026)
- ATO: Net rental property loss (published 27 May 2025, checked 28 October 2026)
This article is general information and is not financial, tax or legal advice. The examples use assumed figures; speak to a licensed accountant, mortgage broker and financial adviser before you buy.
Positive cash flow is a strong base for the next step. If you want help comparing properties on rent, costs and growth, see our investment property buyers agent service.