Negative Gearing & Tax Deductibility

Negative gearing describes the position in which the deductible expenses associated with an income-producing property — principally loan interest, but also a range of other holding costs — exceed the rental income derived from that property in an income year, producing a net rental loss. Under Australian tax law that loss has generally been offset against the taxpayer’s other assessable income, reducing overall taxable income for that year. From the 2027–28 income year, that offset is limited for established residential property acquired from 7.30 pm AEST on 12 May 2026, as set out under Key Concepts below. Negative gearing is not itself a discrete tax concession; it is the practical consequence of the general deductibility provisions of the Income Tax Assessment Act 1997 (Cth) applied to a property with a net rental loss position.

The deductibility framework that produces negative gearing outcomes was a stable feature of the Australian income tax system for several decades until the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, and it materially influences investor cash flow modelling, lending serviceability assessment, and portfolio structuring decisions across the residential and, to a lesser extent, commercial investment markets. An accurate understanding of which expenses are deductible, in what year, and subject to what apportionment requirements is a foundation skill for property investors, their accountants, and lenders assessing borrowing capacity.

This node addresses the general deductibility framework as it applies to rental property, the categories of expenditure typically claimed, and the boundary between immediately deductible expenses and capital expenditure that must be depreciated over time. It connects directly to the capital gains tax treatment addressed elsewhere in this sub-series, since deductions claimed during the holding period can affect the cost base used to calculate a subsequent capital gain.

This node covers:

• The general deductibility provisions applicable to Australian residential and commercial rental property, the principal categories of deductible expenditure, the distinction between repairs and capital improvements, and the treatment of prepaid expenses and apportionment for properties with mixed private and income-producing use
• The limit on deducting net losses from established residential property that applies from the 2027–28 income year, and the standing limits on travel and vacant land deductions

This node does not cover:

• A complete list of every deductible expense category, or deductibility outcomes for any individual taxpayer
• The depreciation and capital works deduction regime in detail → refer to Node 33430
• The political or policy debate concerning negative gearing settings

• Income Tax Assessment Act 1997 (Cth), section 8-1

  Australian Taxation Office

  Establishes the general deductibility test for losses and outgoings incurred in gaining or producing assessable income.
• Income Tax Assessment Act 1997 (Cth), section 25-10

  Australian Taxation Office

  Provides the specific deduction for repairs to property used for income-producing purposes, distinguished from capital improvement expenditure.
• Taxation Ruling TR 97/23 and related guidance on repairs

  Australian Taxation Office

  Sets out the Commissioner’s interpretation of the distinction between deductible repairs and non-deductible capital improvements.
• Income Tax Assessment Act 1936 (Cth), Part IVA

  Australian Taxation Office

  Anti-avoidance provisions relevant where deduction-generating arrangements are structured principally to obtain a tax benefit rather than for a genuine investment purpose.
• Income Tax Assessment Act 1997 (Cth), sections 26-155 and 26-160

  Australian Taxation Office

  Inserted by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026). Limit the deduction of net losses from residential dwellings acquired from 7.30 pm AEST on 12 May 2026, for income years beginning on or after 1 July 2027, and define residential and new residential dwellings.
• Income Tax Assessment Act 1997 (Cth), sections 26-31 and 26-102

  Australian Taxation Office

  Deny deductions for travel relating to residential rental property (from 1 July 2017) and for the costs of holding vacant land (from 1 July 2019), subject to stated exceptions.

Negative gearing and deductibility principles are applied at multiple points in Australian property investment practice. Investors and their accountants apply the general deductions test annually when preparing income tax returns, requiring accurate expense records and apportionment calculations. Lenders incorporate the tax-adjusted cash flow position of a negatively geared property into serviceability assessments, generally applying a discount to modelled tax benefits rather than treating them as certain cash flow. Property managers and owners must characterise material expenditure correctly at the time it is incurred, since misclassification between repairs and capital improvements affects both the current year deduction and the future capital gains tax cost base.