Negative gearing explained with numbers: 2026–27 and the July 2027 changes

A property is negatively geared when the costs of holding it, mostly loan interest, are higher than the rent it earns. The loss can be deducted from other income such as salary, which lowers the tax bill. That is the whole idea. The numbers show how much of a loss the tax saving covers. It is only a share, never all of it. New law also changes who can use it from 1 July 2027.

How it works in 2026–27

Rent is assessable income. Interest, property management fees, council rates, insurance and repairs are deductible while the property is rented or available for rent. If the deductions are more than the rent, the difference is a net rental loss, and it is subtracted from the owner's other taxable income for the year. Any amount that income can't absorb carries forward to a later year.

An example with numbers

An investor buys a $650,000 home with a loan of $520,000 at 6.25%, interest only. The rent is $500 a week.

That is a cash loss of about $299 a week. The tax it saves depends on the owner's salary, because it is taken off the top of their income:

The tax saved is between 32 and 44 cents for each dollar of loss. At $60,000 it is slightly higher than at $100,000 because the lower income also restores part of the low income tax offset. The last column is the rise in the property's value each year that equals the loss after tax. It is a break-even point, not a forecast, and it ignores selling costs and tax on the eventual gain.

What changes from 1 July 2027

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 limits negative gearing on residential property from 1 July 2027. In summary, as described by the ATO and the Government's explainers:

• Properties held at 7:30pm on 12 May 2026, including those under contract but not yet settled, keep full negative gearing until they are sold.
• Established homes bought after that time can be negatively geared until 30 June 2027. From 1 July 2027 the loss can be offset only against income from residential property, including a capital gain on sale. Unused losses carry forward.
• New builds that add to housing supply are not limited. Buying an existing home and renovating or rebuilding it does not qualify unless it adds dwellings.
• Shares and commercial property are not affected.

In the example above, an established home bought now would still give the owner a tax saving in 2026–27. From 2027–28 the same $15,530 loss could not be taken off salary. If it stayed the same for five years, $77,650 of losses would be carried forward, available only against later rental profits or the capital gain.

The same Act also replaces the 50% CGT discount, for gains that accrue from 1 July 2027, with inflation indexing and a 30% minimum tax rate. Gains up to the 1 July 2027 value keep the 50% discount, and people who receive a means-tested income support payment in the year of sale are exempt from the minimum tax. See the capital gains tax discount for how the discount works today.

The catches

• It is a cost first. The loss comes out of the owner's pocket every week. The tax saving arrives later, as a lower bill or a bigger refund.
• Rates and rents move. A one percentage point rise on a $520,000 loan adds $5,200 to the loss before tax. Vacancy and repairs add to it.
• Only rental interest is deductible. If part of the loan funds a private purpose, that part of the interest is not. Purchase costs such as stamp duty are not deductible but can reduce the capital gain later.
• Other tests count it. A rental loss can lower income for some tests, but it is added back for others, including Division 293.
• Growth is not certain. Property values can fall, and the tax saved does not make up for a fall.

Assumptions behind the numbers

• Tax uses 2026–27 resident rates (15% from $18,201, 30% from $45,001, 37% from $135,001 and 45% from $190,001), the 2% Medicare levy and the low income tax offset. Tax saved is the tax on taxable income less the tax on taxable income after the loss. Amounts are rounded to the nearest dollar.
• Each example is a resident for the full year with salary as the only other income, no other deductions or offsets apart from the $1,000 standard deduction for work-related expenses that applies automatically from 2026–27 (Treasury Laws Amendment (Tax Reform No. 1) Act 2026), so taxable income before the rental loss is salary less $1,000, and private hospital cover so no Medicare levy surcharge.
• The property is owned by one person, rented all year at a constant $500 a week, with interest-only repayments at a constant 6.25%. Costs are the rounded amounts in the first table. No depreciation is claimed.
• Growth needed is the loss after tax divided by the $650,000 value.
• The law described for 1 July 2027 is a summary. The ATO and a registered tax agent can confirm how it applies to a particular property.