Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
Negative Gearing in 2026, What Changed?
The short answer: nothing material changed to negative gearing at the federal level in 2026. Despite a decade of political debate and multiple reform proposals, the core framework, allowing property investors to deduct rental losses against other income, remains intact. What has changed is the ATO's scrutiny of how deductions are claimed.
The negative gearing debate resurfaces every election cycle. My advice to clients has been consistent: plan your investment strategy around the rules as they stand, not speculation about future changes. The ATO is focused on correct application of existing rules, not eliminating the rules. Do your depreciation schedules properly, separate repairs from capital improvements, and keep clean records.
What Is Negative Gearing?
A property is negatively geared when total ownership costs, interest, management fees, rates, insurance, repairs and depreciation, exceed rental income. The net loss is deductible against your other income, reducing your tax bill. The strategy assumes capital growth over time compensates for annual cash deficits.
Full List of Deductible Expenses
- Interest on the investment loan (largest deduction)
- Property management fees (7–9% of rent)
- Council and water rates
- Landlord insurance
- Repairs and maintenance (not capital improvements)
- Depreciation, building (2.5%/yr, post-July 1985 builds) and plant/equipment (QS schedule)
- LMI, investment property only, spread over 5 years
- Borrowing costs (legal, application fees) spread over 5 years
- Accountant fees related to the investment
- Advertising for tenants, cleaning, pest control
Worked Example: Sydney Investment, 2026
- Property: $950,000 unit, Inner West · Loan: $760,000 IO at 6.59%
- Weekly rent: $730 ($37,960/year)
- Annual interest: $50,084
- Running costs: $8,200
- Depreciation (QS schedule): $9,100
- Total deductible costs: $67,384
- Net rental loss: $29,424
- Tax saving (37% bracket): $10,887/year ($209/week)
- Weekly after-tax cost: ~$366/week
ATO Focus Areas, 2026
The ATO has flagged rental property deductions as a priority compliance area for 2026 tax returns. Key risk areas:
- Repairs vs capital improvements: A repair maintains; an improvement adds value. Improvements must be depreciated, not immediately deducted.
- Mixed-use properties: Holiday homes with personal use, only the income-producing period is deductible
- Interest on mixed-purpose loans: If personal funds were ever run through an investment loan account, deductibility on that portion may be denied
- Depreciation without a QS schedule: Claims without a professional depreciation schedule are a red flag
- Airbnb and short-term rental: Properties not genuinely available for rent year-round cannot claim full-year deductions
CGT Discount, Unchanged in 2026
Properties held 12+ months qualify for the 50% CGT discount. Only 50% of the capital gain is included in taxable income. For a Sydney property sold after 10 years of growth, this discount is worth tens of thousands in tax savings. The 50% discount remains unchanged in 2026.
Depreciation, The Underused Deduction
A quantity surveyor's depreciation schedule (cost ~$600–$800, fully deductible) typically identifies $7,000–$15,000 in non-cash annual deductions on new or near-new properties. At 37% tax rate, $10,000 in depreciation saves $3,700/year. This is free money that many investors leave on the table.
