Negative gearing is when an investment property costs you more to hold than it earns. Your rent doesn't cover the interest and expenses, so you make a loss. In Australia you can generally offset that loss against your other income, which lowers the tax you pay. From 1 July 2027 that offset is being limited to new builds.
By Kayla Dale, Senior Property Manager and Sales Agent, FAA Property. Last reviewed 25 August 2026. Reviewed against ATO and Treasury guidance, 25 August 2026. General information only, not tax advice. Talk to a registered tax agent about your own position.
What changed in 2026
The law has already passed. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026received Royal Assent on 26 June 2026. Schedule 2 of that Act is titled "Limit negative gearing for residential property to new builds", and the ATO now describes the measures as law rather than as a proposal.
Nothing changes yet. The limits start on 1 July 2027.
| Question | Answer |
|---|---|
| When does it start? | 1 July 2027 |
| Which purchases are affected? | Those made after 7:30pm AEST on 12 May 2026, Budget night |
| What if I already own the property? | Properties held at that moment are exempt. The ATO calls this grandfathering |
| What happens to a loss that is no longer offset? | It is quarantined against your residential rental income, and any excess carries forward |
| Can I still claim interest this financial year? | Yes. The ATO's guidance on rental interest was last updated on 21 May 2026 and is unchanged |
What has not been decided
Here is the part most articles skip. The Act limits the offset to new builds, but what counts as a new build is still being worked out. Treasury's consultation on how to define a new residential dwelling closed on 21 August 2026. Its draft materials treat a property as new where it genuinely adds to housing supply and was acquired within 24 months of a certificate of occupancy, extended from the 12 months announced in the Budget.
So the principle is law and the test is now drafted, but it is still only a draft: Treasury has said the final definition and exemptions go in the primary legislation. Anyone confirming today that a specific property will be exempt is ahead of the evidence.
The treatment of properties that transfer because someone dies or a relationship ends is also still an exposure draft, not law.
How it works, with numbers
Say you own a rental earning $520 a week, so $27,040 a year. Your interest is $31,000. Rates, insurance, management fees and maintenance come to $7,500.
Your costs are $38,500 against $27,040 of rent. You are $11,460 out of pocket. That shortfall is the loss.
Under the current rules you can generally offset that $11,460 against your salary. If you pay tax at 37 cents in the dollar, the offset is worth about $4,240, so the property really costs you around $7,220 for the year rather than $11,460.
That is the mechanism. It doesn't make a loss profitable. It makes a loss cheaper to carry while you wait for rent or value to rise.
These figures are an illustration, not a quote. Run your own numbers before you rely on any of it.
Negative gearing vs positive gearing
Same property, one number changed. That is the clearest way to see the difference, so here it is against the example above.
The rental earns $27,040 a year. Rates, insurance, management fees and maintenance come to $7,500 either way. What decides which camp you are in is the interest bill, which is mostly a function of how much you borrowed.
At $31,000 of interest, total costs are $38,500 and you are $11,460 short. That is negatively geared. Drop the interest to $17,000, because you put in a larger deposit or you have paid the loan down, and total costs are $24,500 against $27,040 of rent. Now the property pays you $2,540 for the year. That is positively geared, and there is no loss to offset because there is no loss.
Notice what that surplus costs you. It is income, so it gets added to your salary and taxed at your marginal rate. At 37 cents in the dollar you keep about $1,600 of the $2,540. Positive gearing doesn't dodge tax. It just means you are paying tax on a gain instead of claiming relief on a loss.
Neither one is better in the abstract, and anyone who tells you otherwise is selling something. Positive gearing pays you now and is easier to hold through a rate rise. Negative gearing is a bet on the property growing in value, funded out of surplus income you have to actually have. The right answer depends on your income, your timeframe and how much shortfall you can comfortably carry.
One thing has changed the arithmetic. From 1 July 2027, the offset that makes a negatively geared property cheaper to hold is being limited. A property bought after 7:30pm AEST on 12 May 2026 doesn't get the same treatment an existing one does, which narrows the case for deliberately running a large loss on an established property. It doesn't touch positive gearing at all, because positive gearing never depended on the offset. What the change is, in detail, and what is still an exposure draft, is set out earlier on this page.
These are illustrations, not a quote, and they ignore depreciation, which moves the line between the two more often than people expect. Model the shortfall on your own figures rather than working from either example.
What this means for you
If you already own an investment property
If you held it before 7:30pm on 12 May 2026, you are grandfathered. Your treatment doesn't change. Worth confirming the exact acquisition date with your accountant, because the date is what the exemption turns on.
If you are buying now
You have until 1 July 2027 before the limits apply, and the definition that decides which properties qualify should be settled well before then. Buying an established property and assuming the offset will still be there in 2028 is the risk to be aware of.
If you are looking at a new build
New builds are the category the Act carves out. That does make them structurally more attractive from 2027. It is not a guarantee that a particular property qualifies, because the definition is still open.
Common questions
Is negative gearing actually worth it?
It depends on whether the property grows in value by more than the loss costs you to carry. A tax offset reduces a loss. It never turns one into a gain. If the growth doesn't arrive, you have simply funded a shortfall at a discount.
What is better, positive or negative gearing?
Neither, in the abstract. It depends on your income, your timeframe and how much shortfall you can comfortably carry. The section above works both cases through on the same property so you can see the difference in dollars, including what the 2027 change does to each.
Who benefits most from negative gearing?
People on higher marginal tax rates, because the offset is worth more per dollar of loss. That is also why the rules are changing.
Does this affect properties I already own?
No, if you held them before 7:30pm AEST on 12 May 2026. Those are exempt.
Where to next
- The 2027 changes in full, including what is still open
- Model what a property would actually cost you to hold
- New build investment property in Queensland
General information only. It doesn't take account of your circumstances and it isn't tax, financial or legal advice. Tax treatment depends on your own situation and the law can change. Talk to a registered tax agent before acting. Sources: the ATO, Treasury and the Federal Register of Legislation, checked 5 August 2026.