Negative Gearing Explained: Is It Still Worth It in 2026?

Negative gearing remains one of the most debated tax strategies in Australia. For property investors, it can be a powerful way to reduce taxable income while building a long-term asset base. But it is not for everyone.

What is Negative Gearing?

A property is negatively geared when the rental income it earns is less than the costs of owning it, such as mortgage interest, council rates, repairs, and property management fees. The resulting loss can be offset against your other income, reducing your total tax payable.

A Simple Example

Say you earn $120,000 from your job and your investment property runs at a $15,000 annual loss. Your taxable income drops to $105,000, saving you approximately $4,950 in tax at a 33% marginal rate. Combined with potential capital growth, this can be a compelling strategy.

Who Benefits Most?

Negative gearing is most effective for individuals on higher marginal tax rates (37% or 45%), because the tax saving on each dollar of loss is greater. For those on lower incomes, the tax benefit is smaller and the cash flow impact of making a loss each year may be harder to sustain.

The Risk: You Are Still Making a Loss

It is important to remember that negative gearing means your property is costing you money each year. The strategy only pays off if the property appreciates in value over time. In a flat or declining market, you could be left with both a running loss and no capital gain.

Depreciation: The Hidden Benefit

One often overlooked component of property investment is depreciation. A quantity surveyor's report can identify significant depreciation deductions on the building and its fixtures, increasing your tax losses without any additional cash outlay.

Is It Still Worth It in 2026?

Despite ongoing political debate, negative gearing on residential property remains intact. With interest rates having moved significantly in recent years, the running cost of investment properties is higher, which paradoxically increases the size of the tax deduction for eligible investors. Whether it makes sense for you depends on your income, cash flow, and long-term goals.