Negative gearing has been a cornerstone of Australian property investment strategy for decades. The concept is simple: you borrow to buy an investment property, and if the rental income does not cover your expenses (mortgage interest, rates, insurance, maintenance), you can deduct the loss against your other income — including your salary. In 2026, with interest rates still elevated and property prices at record highs, the question is sharper than ever: does negative gearing still make financial sense?
How Negative Gearing Works in Practice
Let us walk through a concrete example. Suppose you buy a $700,000 investment unit in Brisbane with a 20% deposit ($140,000) and a $560,000 mortgage at 6.2% interest. Your annual costs might look like this:
- Mortgage interest: $34,720
- Council rates: $2,400
- Strata fees: $4,800
- Insurance: $1,600
- Property management (7%): $2,520
- Maintenance: $2,000
- Total expenses: $48,040
If the property rents for $550 per week ($28,600 per year after allowing for vacancy), your net loss is $19,440. That loss reduces your taxable income by the same amount. If you are in the 37% tax bracket (income between $135,001 and $190,000), the tax saving is approximately $7,193 — meaning the government is effectively subsidising about 37 cents of every dollar you lose on the property.
Use our rental income calculator to model your specific property numbers and see the exact tax impact on your situation.
The Capital Gains Bet
Negative gearing only makes sense if the property increases in value over time. The annual rental loss is the price of admission — the real payoff comes when you eventually sell and pocket a capital gain. And here is the sweetener: if you hold the property for more than 12 months, you only pay tax on 50% of the capital gain under Australia's CGT discount.
In our Brisbane example, if the $700,000 property grows at 4% per year for 10 years, it would be worth approximately $1,036,000 at sale. After accounting for purchase and selling costs of roughly $50,000, the capital gain would be around $286,000. With the 50% discount, your taxable capital gain is $143,000 — generating a tax bill of approximately $52,910 at the 37% marginal rate.
Against that, you would have claimed cumulative rental losses of roughly $120,000 over the decade (assuming the loss gradually shrinks as rent increases), saving approximately $44,400 in tax along the way. The net result is a post-tax gain of approximately $277,000 on your $140,000 deposit — a solid return, but one that came with a decade of negative cash flow and significant risk.
Model your potential capital gains using our capital gains tax calculator to understand the tax implications before you commit.
The Interest Rate Problem
The elephant in the room is interest rates. When the RBA cash rate was 0.1% in 2021 and mortgage rates sat below 2%, negatively geared properties had modest annual losses and strong cash flow prospects. At current rates around 6%, the annual losses are much deeper, which means you need the property to deliver stronger capital growth to justify the strategy.
Historical data from CoreLogic shows that Australian property has delivered average annual growth of around 6.5% over the past 30 years. But that figure masks enormous variation — some markets have doubled in a decade while others have gone backwards. And past performance, as the disclaimers always say, is not a reliable indicator of future results.
The risk is straightforward: if your property grows at only 2% per year instead of 4%, the capital gain after 10 years drops to about $152,000, and after tax and costs, you have barely broken even on the investment. If prices fall — as they did in Sydney and Melbourne during 2018-19 and again in 2022 — you could end up worse off than if you had simply put the deposit into an index fund.
Comparing Property to Other Investments
This is where the analysis gets uncomfortable for property enthusiasts. Let us compare the Brisbane unit example to a simple alternative: investing the same $140,000 deposit into a diversified Australian share index fund.
Assuming the ASX 200 returns its long-term average of 9.5% per annum (including dividends and franking credits), $140,000 invested for 10 years grows to approximately $347,000 — a gain of $207,000 with no leverage, no tenants, no maintenance bills, and no 3am phone calls about leaking pipes. After CGT (with the 50% discount), the after-tax gain is roughly $131,000 plus $76,000 in franking credit offsets, netting a total return well above the leveraged property scenario on a risk-adjusted basis.
The property investor would counter that leverage is the key advantage: you are controlling a $700,000 asset with $140,000 of equity, so even modest percentage growth delivers larger absolute returns. That is true, but leverage works both ways, and the carrying costs of a negatively geared property are the price of that amplification.
Our dividend franking calculator can help you understand the tax efficiency of share investments as an alternative to property.
The Political Risk
Negative gearing has been a political football since at least 2016, when Labor took a policy to restrict it to new-build properties to the federal election. That policy was abandoned after Labor's surprise loss, but the debate has never gone away. The Greens continue to advocate for abolishing negative gearing entirely, and even some Coalition-aligned economists have questioned whether the concession delivers value for money.
Any future restriction on negative gearing would reduce the tax benefit for existing investors and could dampen property prices, at least in the short term. While outright abolition seems unlikely, investors should factor political risk into their decision-making — particularly if they are banking on negative gearing as a core component of their strategy.
Who Should Still Consider Negative Gearing?
Negative gearing still has a place for certain investors. Specifically, it works best if you:
- Are in a high marginal tax bracket (37% or 45%), maximising the value of the tax deduction
- Have a long investment horizon (10+ years) to ride out market cycles
- Can comfortably absorb the negative cash flow without financial stress
- Are investing in a high-growth location with strong rental demand
- Have already maxed out your concessional super contributions and are looking for additional tax-effective investment options
If you do not tick most of those boxes, you may be better served by other strategies — salary sacrificing into super, investing in shares, or simply paying down your own mortgage faster.
Run the numbers on your employer's total cost and your current tax position using our employer cost calculator and salary calculator to understand your full financial picture before committing to a leveraged property strategy.
The Bottom Line
Negative gearing in 2026 is not the no-brainer it was in 2015 when interest rates were low, prices were rising fast, and the tax concession was unchallenged. Higher rates have deepened annual losses, compressed yields, and made the break-even point harder to reach. Property can still work as a wealth-building tool, but the margins are thinner and the risks are higher than many spruikers would have you believe.
Do the maths. Use our rental income calculator and capital gains tax calculator to model your specific scenario, and compare the results honestly against simpler alternatives. The best investment is the one that matches your risk tolerance, time horizon, and financial goals — not the one that sounds most impressive at a barbecue.