Negative gearing means a rental property costs more each year than it earns, and the shortfall reduces the tax on your other income. From 1 July 2027 that is limited to new builds and to properties already held on 12 May 2026.
A property is negatively geared when the interest and running costs are higher than the rent. In Australia that loss can generally be deducted from your other income, so part of it comes back at tax time.
From 1 July 2027 that applies only to new builds and to properties already held at 7:30pm AEST on 12 May 2026. Part of it, not all of it: you are still out of pocket every year, and the strategy only works if the property grows in value by more than it costs you to hold.
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The first question every Sydney investor asks, repayments against rental income, the way a lender sees it.
A gap isn’t a dealbreaker, negative gearing, interest-only periods and offset structure change the cash-flow picture. That’s the conversation.
Estimates only, rates, vacancy, costs and tax change the real picture. Not credit or tax advice.
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The interest is deductible because the money was borrowed to buy a property that earns rent. That link is easy to blur.
Redrawing from an investment loan for personal spending, or paying down the investment loan while the home loan sits untouched, makes it harder to show which debt is which.
This is where the loan structure matters as much as the rate: separate splits for each purpose, an offset account rather than redraw where a home may later become an investment, and no mixing of personal and investment borrowing.
Your accountant confirms the tax side; Charles sets the loans up so the records stay clean.
When you apply, lenders count only part of the rent, often around 70 to 80 per cent, to allow for vacancy and costs, and they test the repayments at a buffer above the actual rate.
Some lenders also allow for the tax benefit of negative gearing in their servicing calculation, and others do not, which is one reason borrowing power for investors varies so much from lender to lender. Holding several negatively geared properties can reduce how much you can borrow for the next one.
Four numbers to know before you buy.
Yes. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, from 1 July 2027 negative gearing on residential property is limited to new builds, and properties already held at 7:30pm AEST on 12 May 2026 keep the current rules. The table below sets out each case.
Each year, usually yes. The rent does not cover the costs, and the tax saving only returns part of the shortfall. Investors accept that cash cost in the expectation that the property’s value grows by more over the years they hold it.
A negatively geared property costs more to hold than it earns. A positively geared property earns more than it costs, and the surplus is taxable. A property can move from one to the other as rents rise, the loan is paid down or interest rates change.
No. The deductions come from earning rent, so interest on the home you live in is not deductible. That is why investors often pay down their own home loan first and keep the investment debt in place.
Sometimes. Some lenders count the tax benefit when they assess your income, which can lift borrowing power, while others assess the property’s shortfall without it. Charles compares how different lenders treat the same numbers before you apply.
It is common, because it keeps the deductible debt higher and frees up cash for a non-deductible home loan.
The balance does not fall during the interest-only period, though, and repayments rise when it ends, so it is a structure and tax question to work through with Charles and your accountant.
| Held at 7:30pm AEST on 12 May 2026, including contracts signed but not yet settled | Current rules continue. Gains accruing after 1 July 2027 use cost base indexation and a 30% minimum tax instead of the 50% discount. |
|---|---|
| New build | Can still be negatively geared. Choice of the 50% discount, or indexation and the 30% minimum tax. |
| Established home bought after 7:30pm AEST on 12 May 2026 | Until 30 June 2027, current rules. From 1 July 2027 the loss can only offset residential rental income and capital gains; any excess carries forward. Gains accruing after 1 July 2027 use cost base indexation and a 30% minimum tax. |
Official sources for the rules on this page: ATO, reforming negative gearing and capital gains tax · Budget 2026-27 tax explainer. Tax rules change; the official pages are the final word. Checked against these sources on 14 October 2026.
Use the rental yield calculator to see what a property returns before costs and loan repayments, and our investment loan FAQ for the questions that come with a first investment, and how to choose an investment property in Sydney for weighing yield against growth.
Charles can show how the rent, the repayments and your borrowing power fit together before you commit, and how to structure the loans so the interest stays deductible.
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General information only, not tax, credit or financial advice. Tax outcomes depend on your circumstances and the rules that apply at the time, so speak with your accountant or a registered tax agent before acting. Lender policies on rental income vary and change.
