Negative Gearing 2026: Guide and Budget Impacts for Rental Property Owners

Negative gearing is a financial strategy where an investor borrows money to buy a rental property, and the annual costs of owning that property—including interest and maintenance—exceed the rental income earned. This resulting net loss can be claimed as a tax deduction against other personal income, effectively reducing your total taxable earnings.

What is negative gearing and how does it work?

At its core, negative gearing is about cash flow versus tax strategy. When you own a rental property, you generate income through rent. However, you also incur significant expenses. These expenses include mortgage interest, property management fees, repairs, insurance, council rates, and depreciation. If these outgoing costs are higher than the incoming rent, your property is 'negatively geared.'

While losing money on an investment might seem counterintuitive, the primary appeal in the Australian market is the ability to offset these losses against your primary income, such as your salary. This reduces the amount of income tax you pay at the end of the financial year. The long-term goal of this strategy is capital appreciation. Investors are often willing to sustain short-term rental losses in exchange for the long-term wealth created when the property value eventually increases. When you eventually sell the property for a profit, that gain ideally outweighs the total losses sustained over the years of ownership.

Negative gearing is particularly effective for those in higher tax brackets. Because the deduction is applied to your marginal tax rate it means for most people 32% to 47% of the losses are paid by the ATO.  This creates a cushion that makes it more affordable to hold high-value assets in premium locations where rental yields might be low but capital growth potential is high. However, it requires a stable primary income to fund the gap between rental income and property expenses during the holding period.

Understanding the 2026 Budget Impact on Landlords

The recent 2026 budget announcements will hurt anyone who was planning to buy an investment property that is not a new build. The changes mean that you cannot claim your rental property losses against your other income. You can only claim a rental property's losses against your rental properties or use the losses to reduce the capital gain when you sell the property.

The removal of negative gearing is going to make it financially difficult to afford to service the loan on an established rental property.

The only good news is that negative gearing stays for properties you owned before 12 May 2026. 

Also negative gearing remains in place if you purchase a newly constructed residential property.

Strategies for overcoming negative gearing changes.

One option is to purchase a newly constructed residential property. Negative gearing continues to be available for these properties 

The benefits with purchasing a new property in addition to the negative gearing is: 

• The 50% Capital gains tax discount will continue to be available. 
• Being new, repairs and maintenance costs will be less 
• Non-cash deductions such as depreciation and building write off will be higher than on an existing property. 

The drawbacks of a new property are: 

• The cost will be higher and hence the loan amount higher 
• Uncertainty at this stage on what these budget changes will do to your selling price as the new house will be an established property when you sell it. 

Another option is to invest direct shares or managed funds. 

The benefits of these investments over established residential property are: 

• Negative gearing is available on these investments. You can offset losses against your other taxable income. 
• The negative gearing can be increased by using a debt recycling strategy to turn some of the debt on the home you live in, into tax deductible debt. 
• You do not have to invest as much, as you can buy a small portion of a company or a fund, whereas with property you must buy the whole house or unit. 
• You do not have much in the way of ongoing costs, unlike with a property. 
• You do not have problems caused by poor tenants 
• You can get greater diversification of your investments and reduce your risk, rather than have it all in one property asset. 

The drawbacks are: 

• You understand property but not shares or managed funds.  This can be overcome by working with an ASIC authorised financial advisor who you trust. 
• Fees erode the income you earn.  All investments, including property have costs. Understanding the fees up front is important.  ASIC requires that all fees be clearly laid out before you invest. 



Don't act hastily as these changes only impact you if you purchase a established home as an investment property.  When negative gearing was removed in 1985 for two years it had to be reversed because it caused the rental market to dry up.  These changes are not as severe as the 1985 changes as they exclude existing and new builds.  However the housing market is impacted by these current changes.  It would be prudent to wait and see more clearly how these changes pan out.  

Essential Components of a Negative Gearing Strategy

To successfully navigate negative gearing in the current environment, investors must look beyond just the tax deduction. A robust strategy involves balancing the immediate tax relief with the long-term performance of the asset. This requires a deep understanding of market trends, interest rate cycles, and property management. If a property is poorly located and fails to grow in value, the tax deductions will never make up for the lack of capital growth.

Key areas to focus on for a healthy property portfolio include:

• Interest Rate Management : Choosing between fixed and variable rates to manage cash flow predictability.
• Depreciation Schedules : Engaging a quantity surveyor to maximize the non-cash deductions available for your property.
• Rental Yield Optimization : Regularly reviewing rent to ensure it stays in line with market demand.
• Maintenance Planning : Addressing repairs proactively to prevent larger, more expensive issues later.
• Tax Variation Claims : Applying for a PAYG withholding variation so you receive your tax benefits in each pay cycle rather than waiting for the end of the year.

By treating your rental property as a business, you can mitigate the risks associated with negative gearing. This involves regular reviews of your financial position and staying informed about legislative changes that might affect your borrowing capacity or your ability to claim specific expenses. At Ambrosiussen Holistic Advisors, we help clients see the "big picture" by integrating property investment into their broader financial roadmap.

Is negative gearing still worth it in the current market?

Whether negative gearing remains a viable strategy depends entirely on your individual financial situation and the specific property in question. In a high-interest-rate environment, the costs of holding a property increase, which can deepen the negative gear. While this increases your tax deduction, it also puts more pressure on your weekly cash flow. Therefore, it is only 'worth it' if you have the financial buffer to survive market volatility and if the property is located in an area with strong historical and projected capital growth.

Investors should also consider the opportunity cost. Would that same capital perform better in a diversified share portfolio or by making extra contributions to superannuation? The answer varies from person to person. As life changes, your strategy should too. What worked for you five years ago may no longer be the most efficient path today.

Key Takeaways for Property Investors:

• Tax Benefits are Secondary : Never buy a property just for the tax deduction; the underlying asset quality is what drives wealth.
• Cash Flow is King : Ensure you have enough liquidity to cover the gap between rent and expenses, especially if interest rates rise.
• Professional Advice is Vital : Consult with advisors to understand how budget changes specifically affect your tax bracket and portfolio.
• Stay Long-Term : Negative gearing is a marathon, not a sprint; it relies on time in the market to realize capital gains.
• Review Regularly : Legislation and markets change; your investment strategy should be reviewed annually to remain optimal.

If you are looking for clarity on how your rental properties fit into your overall financial future, we encourage you to contact our team . We can help you navigate the complexities of the 2026 budget changes and ensure your strategy is working in sync with your life goals.

GENERAL ADVICE WARNING:

The advice provided is general advice only. In preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.