⚠️ 2026 Budget update: Negative gearing on established properties purchased after 12 May 2026 will be quarantined from 1 July 2027. New builds retain full treatment.
How negative gearing works
Negative gearing allows Australian investors to offset a rental property's losses against their other income, reducing their total tax bill. The mechanism is straightforward: if your investment property costs more to hold than it earns in rent, the shortfall is a deductible loss.
The key to understanding negative gearing is that depreciation is your most powerful lever. Depreciation is a non-cash deduction — you claim it without spending the money — yet it increases your rental loss and therefore your tax saving. A quantity surveyor's depreciation schedule typically costs $400–$900 and can unlock $3,000–$12,000 per year in additional deductions.
At a 37% marginal rate, every $1,000 in additional deductions is worth $370 in real cash returned to you at tax time. The higher your income and the higher your marginal rate, the more valuable negative gearing becomes.
The 2026 Budget changes: what investors need to know
| Property type | Purchased before 12 May 2026 | Purchased after 12 May 2026 |
|---|
| Established property | Full negative gearing — loss offsets salary income | Losses quarantined from 1 July 2027 (grandfathered) |
| New build / off-the-plan | Full negative gearing | Full negative gearing retained — no change |
Grandfathered properties (bought before 12 May 2026) retain full negative gearing treatment indefinitely. Quarantined losses are not eliminated — they accumulate and reduce tax when the property is sold or becomes cash flow positive.
Frequently asked questions
What is negative gearing?
Negative gearing is when the costs of owning an investment property (interest, management fees, rates, insurance, repairs, depreciation) exceed the rental income. The resulting loss can be offset against your other income (salary, wages), reducing the tax you pay. This is the mechanism that makes many Australian investment properties viable despite having rental yields below the mortgage interest rate.
How much tax do I save from negative gearing?
Your tax saving equals your rental loss multiplied by your marginal tax rate. For example: a $15,000 annual rental loss at a 37% marginal rate saves $5,550 in tax per year — or about $107 per week. The higher your income (and therefore marginal rate), the more valuable negative gearing becomes as a tax strategy.
What changed with the 2026 Federal Budget?
The May 2026 Budget announced that for established properties purchased after 12 May 2026, rental losses will be 'quarantined' from 1 July 2027. This means the losses can no longer be offset against your wages or salary income immediately. Instead, they accumulate and can only be applied against future rental profits or upon sale of the property. New builds are exempt from this change and retain full negative gearing treatment indefinitely.
Does negative gearing still make sense after the 2026 Budget?
For new builds, yes — nothing has changed. For established properties bought after 12 May 2026, the tax saving from negative gearing is deferred rather than eliminated. The loss doesn't disappear — it builds up and offsets your taxable income when the property eventually turns cash flow positive, or reduces your CGT liability when you sell. Investors in higher brackets may find the effective value of negative gearing reduced by the deferral.
What expenses can I claim as deductions against rental income?
Deductible rental expenses include: mortgage interest (the largest deduction), property management fees, council rates, water rates, landlord insurance, repairs and maintenance, advertising costs, legal fees for tenancy matters, accounting fees, and depreciation on the building (Division 43) and plant and equipment (Division 10A). Capital improvements — works that extend the property's life or add new features — are not immediately deductible but are added to the cost base for CGT purposes.
What is the difference between repairs and capital improvements for tax purposes?
Repairs restore the property to its original condition and are immediately deductible (e.g., fixing a broken fence, re-painting after tenants). Capital improvements add new value or extend the property's life and are not immediately deductible — they go into the cost base or are depreciated over time (e.g., adding a new bathroom, installing a pool). The ATO enforces this distinction strictly, and misclassifying capital improvements as repairs is a common audit trigger.
This calculator applies current negative gearing rules for grandfathered properties. The 2026 Budget quarantining rules for established properties purchased after 12 May 2026 take effect from 1 July 2027. Tax saving figures are estimates at your selected marginal rate. Always consult a qualified property accountant for advice specific to your situation. Not financial or tax advice.