Negative Gearing in 2026:
Does It Still Make Sense?

Few investment strategies divide opinion in Australia quite like negative gearing. Politicians have proposed abolishing it. The media treats it as shorthand for everything wrong with housing affordability. Property spruikers use it as a selling point without explaining what it actually means.

The truth, as usual, is more nuanced. Negative gearing is a specific tax treatment, not a strategy. Whether it makes sense for you depends on your income, your goals, your cash flow position, and the quality of the underlying asset. This article explains what negative gearing actually is, how it works in 2026, and when it genuinely works in an investor's favour — and when it doesn't.

What negative gearing actually means

A property is negatively geared when the rental income it generates is less than the costs of owning it. Those costs include mortgage interest, property management fees, insurance, council rates, repairs and maintenance, and (for new properties) depreciation on the building and fixtures.

When the total costs exceed the rental income, you're running a net loss on the property. Under Australian tax law, that loss can be offset against your other income — reducing your taxable income for the year. The tax saving is the benefit of negative gearing.

A worked example

The key question: Growth must do the work

Negative gearing is not a strategy in itself — it's a tax feature that changes the economics of an investment that is primarily dependent on capital growth. If the property doesn't grow in value, the tax saving doesn't compensate for the out-of-pocket holding cost.

This is where many investors make a critical error. They buy a negatively geared property purely for the tax benefit, without scrutinising the capital growth fundamentals. Ten years later, the asset has barely kept pace with inflation, and they've contributed $100,000+ in after-tax cash to hold it.

The tax saving is real and meaningful — but it's a subsidy on a growth strategy, not a growth strategy by itself. Negative gearing only works in your favour when the property is in a market that will deliver above-average capital growth over your holding period.

Who benefits most from negative gearing?

The benefit of negative gearing scales with your marginal tax rate. The higher your income, the more each dollar of deductible loss saves you. An investor on the 47% marginal rate (including Medicare levy) saves $0.47 in tax for every $1 of property loss. An investor on the 19% rate saves $0.19.

This means negative gearing is most effective for high-income earners with sufficient cash flow to cover the out-of-pocket holding cost during the growth phase. For lower-income investors, the tax benefit is smaller and the cash flow burden is the same — making positive cash flow or neutral gearing a more practical starting point.

Income thresholds to be aware of in 2026

• $135,001–$190,000: 37% marginal rate — meaningful negative gearing benefit
• Above $190,000: 45% marginal rate (+2% Medicare) = 47% effective saving per dollar of loss
• $45,001–$120,000: 32.5% marginal rate — moderate benefit
• Below $45,001: 19% marginal rate — limited benefit; positive cash flow strategies often more suitable

Negative gearing and depreciation: The power combination

For new properties, negative gearing and building depreciation work together powerfully. Depreciation is a non-cash deduction — the ATO allows you to claim the decline in value of the building structure (at 2.5% per year over 40 years) and the fixtures and fittings (at accelerated rates). This increases your total deductible costs without increasing your actual out-of-pocket cash.

A new property purchased for $700,000 might generate $18,000–$25,000 in annual depreciation deductions in its early years, on top of interest and running costs. This can make a property appear more negatively geared — and generate a larger tax benefit — than an equivalent established property.

The depreciation cliff on established properties

Since the 2017 budget changes, investors who buy established properties can no longer claim depreciation on existing fixtures and fittings (items that were already depreciated by the previous owner). Only structural improvements you make can be depreciated. This has meaningfully changed the comparison between new builds and established properties for tax purposes.

Does negative gearing face political risk in 2026?

The question of negative gearing reform resurfaces every election cycle. To date, no government has succeeded in removing it — partly due to political risk, partly because the modelled effects on housing supply and prices have consistently been disputed.

As of 2026, negative gearing remains fully intact as per existing tax law. Investors with a 10+ year horizon should note that any change, if it came, would almost certainly grandfather existing properties — protecting current investors. No reputable analysis suggests a retrospective change is plausible.

That said, any investment strategy that relies entirely on a tax benefit is fragile. The best negatively geared investment is one where the underlying asset is strong enough that you'd hold it even if the tax benefit changed. Tax treatment should enhance a good property decision — not justify a poor one.

Positive vs. neutral vs. negative gearing: A comparison

Positively geared property generates more rental income than it costs to hold — including loan repayments. These properties often offer lower capital growth but stronger immediate cash flow, and suit investors who need the income or who have limited capacity to fund a weekly shortfall.

Neutrally geared property costs roughly what it earns. Cash flow is close to zero, and the investor's primary return is capital growth. Many high-quality growth properties sit in this zone, particularly in the first few years after purchase as rents increase.

Negatively geared property costs more than it earns — the difference must be funded from other income. In exchange, the investor receives a tax offset and, ideally, above-average capital growth.

None of these is universally superior. The right choice depends on your income, cash flow position, risk tolerance, and investment timeline. What doesn't change is the underlying principle: you are primarily investing for capital growth, and the gearing strategy is a financial tool that helps you hold the asset long enough for that growth to materialise.