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.
14 May 2026 – 5 minute read
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
1. Possible tax deductions: Losses incurred through your property investment each year could potentially be used to offset your income from other sources – such as your salary, business income or interest on savings.
2. 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.
3. 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.
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.
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.
As an investment property owner, some of the expenses to factor into your financial planning may include the following:
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.
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
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This information is general in nature and has been prepared without taking your personal objectives, circumstances and needs into account. You should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.
Any tax information described is general in nature and it is not tax advice or a guide to tax laws. We recommend you seek independent, professional tax advice applicable to your personal circumstances.
Taxation considerations in this publication should not be interpreted or used as tax advice or a tax guide.