When property prices fall, the rent may no longer cover the cost of holding an investment property. Negative gearing means that shortfall lowers the tax on your other income. It doesn't turn a loss into a profit, but it reduces what holding through a downturn costs you.
What Negative Gearing Means in a Falling Market
Negative gearing is when your investment property costs more to hold than it earns in rent. That net loss is deductible against your other income — your salary, business income, or any other taxable earnings.
In a rising market, investors accept that loss because capital growth covers it. In a flat or falling market, the tax deduction is the main thing offsetting the loss while you wait for prices to recover. Before you decide the loss is worth carrying, check your suburb's gross rental yield — a property already yielding well needs less of a tax offset to justify holding through the downturn.
Example: Sarah is a nurse in Brisbane earning $95,000. She bought her investment unit before 12 May 2026. It rents for $2,100 a month but costs $2,700 a month to hold (mortgage interest, rates, insurance, property management). Her annual rental loss is $7,200. At her marginal rate of 30% plus the 2% Medicare levy, that saves her $2,304 in tax for each year she holds at that loss. She still pays the other $4,896 herself. Investment buyers in QLD pay standard transfer duty, and foreign buyers add the 8% Additional Foreign Acquirer Duty — model the full upfront cost with the QLD stamp duty calculator.
What You Can Claim While You Hold
Loan interest is usually the biggest deduction. Council rates, land tax, insurance, property management fees, repairs and depreciation also come off your rental income. Purchase costs such as stamp duty and conveyancing don't; they're added to your cost base for capital gains tax. The full list, with the repair-versus-improvement test and the depreciation rules, is in our investment property tax deductions guide.
Enter your income and property details into our Tax Advisor to calculate your real deduction value.
See My Negative Gearing Tax Saving → Free · No account needed · 2025–26 ratesSelling After Prices Recover: The CGT Change
Negative gearing handles the holding period. Capital gains tax (CGT) decides what you keep when you sell.
If you sell your investment property after holding it for more than 12 months, only 50% of the gain up to 30 June 2027 is assessable. Growth after that date is taxed under new rules.
What Changes for Negative Gearing From 1 July 2027
For established homes bought (contract signed) after 7:30pm AEST on 12 May 2026, rental losses from 1 July 2027 can only offset residential rental income or residential capital gains, not salary. Property owned or under contract before then, and new builds, keep the current rules. Full breakdown, with worked numbers: Negative Gearing After 12 May 2026: The 7:30pm Contract Rule.
The Depreciation Report
During a downturn many investors cut back on professional services. A depreciation report from a quantity surveyor usually costs $550–$900 for a residential property, and the fee is itself deductible. On a newer building it can find several thousand dollars of deductions a year.
Building deductions generally apply at 2.5% a year to homes whose construction started after 15 September 1987, and at 4% a year to homes started between 18 July 1985 and 15 September 1987. If you bought an established home after 9 May 2017, the fittings that came with it (ovens, carpets, blinds) generally can't be depreciated; new fittings you buy can.
Example: Marcus owns a two-bedroom apartment in Melbourne. His report shows $8,400 of depreciation in the first year. At a 39% tax rate (37% plus the Medicare levy), that cuts his tax by $3,276.
Your Downturn Investor Checklist
| Action | Tax Impact |
|---|---|
| Claim all loan interest on the rental share of the loan | Reduces taxable income dollar-for-dollar |
| Commission a depreciation report | Building and new-fitting deductions each year |
| Classify repairs vs improvements correctly | Repairs = immediate; improvements = claimed over time |
| Check your contract date | Bought an established home after 7:30pm AEST 12 May 2026? Losses are ring-fenced from 1 July 2027 |
| Hold >12 months before selling | 50% CGT discount on the gain up to 30 June 2027 |
| Record the property's value around 30 June 2027 | Sets the split between the discounted gain and later indexed growth |
Velofy's Tax Advisor models your rental income, losses and deductions using 2025–26 tax rates.
Calculate My Investor Tax Deductions → Free · No account needed · 2025–26 ratesA plain-English guide to buying and holding investment property in Australia, including negative gearing, depreciation and rental income.
Shop on Amazon AU →Track purchase costs, capital improvements, rental expenses and depreciation schedule items, so your records are ready at tax time.
Shop on Amazon AU →Frequently Asked Questions
Is negative gearing still worth it in a property downturn?
It can help, but it doesn't turn a loss into a profit. A rental loss still costs you money; negative gearing means the loss lowers the tax on your other income, so at a 32% tax rate (30% plus the Medicare levy) the tax saving covers about a third of it. In a downturn that helps with holding costs while you wait for values to recover, but the property still has to grow enough to make up for the after-tax losses. For established homes bought after 7:30pm AEST on 12 May 2026, losses from 1 July 2027 can only be offset against residential rental income or residential capital gains, not salary.
What can I claim on a negatively geared property in Australia?
Loan interest, property management fees, council rates, insurance, repairs, depreciation and accounting fees. Purchase costs such as stamp duty can't be claimed as a deduction; they're added to your cost base for capital gains tax instead.
Is the negative gearing tax deduction changing from 2027?
Yes, from 1 July 2027, for established homes bought (contract signed) after 7:30pm AEST on 12 May 2026. Rental losses on those homes can then only offset residential rental income or residential capital gains, not salary or other income. Property you already owned or had under contract before then keeps the old rules, and new builds are exempt. The change became law on 26 June 2026. Velofy's guide to the 7:30pm contract rule has the full breakdown.
How does the CGT discount work for investment properties in Australia?
If you sell after owning it for more than 12 months, only half of your gain is taxed under the current 50% discount. For gains made from 1 July 2027 the discount is replaced by indexing your cost base to inflation, with a 30% minimum tax on the real gain. Property you own on 30 June 2027 is treated as sold and bought back at its market value at that date: the gain up to then keeps the 50% discount, and only later growth uses the new rules.
What is a depreciation report and do I need one?
It's a report from a quantity surveyor listing the depreciation you can claim each year on the building and on fittings such as ovens and carpets. Building deductions generally apply at 2.5% a year to homes whose construction started after 15 September 1987, and at 4% a year to homes started between 18 July 1985 and 15 September 1987. If you bought an established home after 9 May 2017, you generally can't claim depreciation on its existing fittings, only on the building and on new fittings you buy. The report usually costs $550–$900, and that cost is tax deductible.