What is negative gearing in property investing?

What is negative gearing?

When you buy an investment property, you’ll need to consider how to gear the finances to match your investment goals. A negative gearing strategy may be chosen by Australian investors due to the potential for tax deductions – though it can have downsides. This guide to negative gearing aims to help you decide whether it’s the right investment strategy for you.

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14 May 2026 – 5 minute read

Key take-outs

Investment properties are negatively geared when expenses exceed income
Funds will be required to make up the difference
It may be possible to offset the losses incurred against tax liability
An increase in property value may outweigh the funds required to cover losses.

What you’ll learn

What is negative gearing versus positive gearing?
What are some of the features of a negative gearing strategy?
Who could benefit from negative gearing?
What are the potential risks of negative gearing?
What rental property expenses might I be able to claim for?
Who can I talk to about positive or negative gearing?

gearing

What is negative gearing versus positive gearing?

You have a negatively geared property asset if the loan interest, expenses plus other costs associated with your property exceed your rental income.

Example of negative gearing:
Loan interest, council rates, maintenance, etc. per month: $3,350
Rental income earned per month: $3,200
Net rental loss per month: $150

Your property investment is positively geared when the rent you receive exceeds the interest repayments on your loan, plus other rental expenses. Positive gearing leaves you with a profit.

Example of positive gearing:
Loan interest, council rates, maintenance, etc. per month: $3,350
Rental income earned per month: $3,500
Net rental income per month: $150

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What are some of the features of a negative gearing strategy?

Possible tax deductions: Depending on the property and when it was acquired, there may be opportunities to offset your other income and reduce the overall amount of tax you pay.
The availability and treatment of negative gearing tax benefits are subject to current government rules and tax laws. Ask your tax adviser for advice.
Capital growth may outweigh losses: The increase in the value of your property over time may be greater than the losses made along the way due to negative gearing.
The rent on your property can grow, increasing your gross income: Provided your loan amount stays the same or gets smaller, eventually your negatively geared property may become cash flow neutral and then positively geared – which could provide extra income, for example in retirement.

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Who could benefit from negative gearing?

Negative gearing is often used as a long-term investment strategy by people who can comfortably cover extra costs – including if interest rates rise – as market conditions fluctuate.

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What are the potential risks of negative gearing?

Before adopting a negative gearing strategy, you’ll want to be sure you have enough money to cover the losses incurred each month. You should also allow for unforeseen circumstances, such as a prolonged property vacancy, the need for major repairs, interest rate rises, or disruption in your everyday income – including potential unemployment.

If the shortfall becomes too much to manage, you may need to sell the property, which could result in a loss if values have fallen.

Aside from potential risks, if values have risen (or you’re positively geared), you should factor into your financial planning the need to pay tax (namely Capital Gains Tax) on any increase in value. Learn about Capital Gains Tax on the Australian Tax Office website.

expenses

What rental property expenses might I be able to claim for?

As an investment property owner, some of the expenses to factor into your financial planning may include the following:

Interest repayments on the loan you’ve taken out
The cost of maintenance and other out of pocket costs
Council rates
Any property management / agent fees you pay
Body corporate fees and other expenses
Landlord insurance
Depreciation on included services and appliances
Depreciation of capital works on the property.

Some of these expenses may be claimable. For up-to-date information, read the Australian Tax Office’s guide on what you can claim against your investment property rental income.

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Who can I talk to about positive or negative gearing?

If you’re considering buying an investment property, it’s important to consider all the potential pros and cons before you make a purchase.

The right gearing strategy for you will depend on your individual situation and attitude to risk – so as a general rule it may help to speak to a registered tax agent or adviser. These professionals should be able to guide you on the possible tax implications of gearing strategies for your circumstances.

For detailed information on the tax implications of having an investment property, the Australian Tax Office website has a section dedicated to residential rental property.