Negative gearing is one of the most debated tax strategies in Australia — and one of the most widely used. Here is exactly how it works, the real tax benefits, and who it actually suits in 2026.
What Is Negative Gearing?
A property is negatively geared when the rental income it generates is less than the costs of owning it (mortgage interest, rates, maintenance, property management fees, depreciation). The resulting loss can be offset against your other income, reducing your overall tax bill.
Mortgage interest: $32,000/yr
Other costs (rates, insurance, management): $6,000/yr
Net rental loss: $10,000/yr
Tax saving (at 37% marginal rate): $3,700/yr
Negative Gearing vs Positive Gearing
| Negative gearing | Positive gearing | |
|---|---|---|
| Cash flow | Negative (costs you monthly) | Positive (earns monthly) |
| Tax on income | Loss reduces tax | Profit adds to taxable income |
| Growth focus | Capital gain | Rental yield |
| Best suited to | High income earners | Retirees, low income |
The 50% CGT Discount
The real tax benefit of negative gearing compounds when you sell. Properties held for more than 12 months attract a 50% capital gains tax (CGT) discount — meaning you only pay tax on half the capital gain. For a high-income earner, this makes growth-focused properties particularly tax-efficient.
Is Negative Gearing Worth It in 2026?
Negative gearing only makes financial sense if the property appreciates enough over time to offset the ongoing losses. With interest rates at current levels, many negatively geared properties have very large monthly shortfalls — which require strong capital growth over 5–10+ years to justify.
It suits investors who have:
- A high marginal tax rate (37% or 45%) — the tax savings are larger
- Capacity to fund the monthly shortfall from other income
- Long investment horizon (7–15+ years)
- Confidence in capital growth in their target market
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Disclaimer: General information only. Not financial advice. Always consult a licensed professional before making financial decisions.