How to Use Negative Gearing and Plan Your Investment Loan

Negative gearing now depends on when you buy, so the date on your contract matters as much as the loan itself. If you are a Rockdale investor, or thinking of becoming one, the rules changed in 2026. Your investment loan needs to be built around them.

This article covers who keeps the old rules, who faces the new ones, and how to structure borrowing so the numbers still work.

What Is Negative Gearing and How Does It Work?

Negative gearing means your rental property costs more to hold than it earns in rent. The shortfall is a net rental loss, and the tax treatment of that loss is what investors call negative gearing benefits.

Interest on money borrowed to buy a rental property is deductible to the extent the property is rented or available for rent. Other claimable expenses include council rates, insurance, property management fees, repairs and depreciation. On a principal and interest loan, only the interest part is deductible. The principal part is a repayment of capital and is not.

A loss is not a win. You are spending real dollars in the hope that growth outweighs the shortfall. Talk to your accountant about how any deduction affects your own tax position, because the outcome depends on your income and circumstances.

Which Negative Gearing Rules Apply to Your Property?

The rule you fall under depends on when you acquired the property. Properties held at 7:30pm AEST on 12 May 2026, including those under contract and awaiting settlement, keep full deductibility of losses against other income, including salary, until the property is sold.

Eligible new builds acquired after that date can also keep deducting losses against all income. Eligible new builds include dwellings built on previously vacant land, and dwellings that replace existing ones where the number of dwellings increases. Knock-down rebuilds that add no dwellings, and substantial renovations, do not qualify.

For established residential properties acquired after 7:30pm AEST on 12 May 2026, a different rule applies from the 2027-28 income year. Net rental losses can only be deducted against other residential property income, including capital gains on residential property. Excess losses carry forward to future years. Properties bought between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.

The change does not affect whether interest is deductible. It changes what you can offset the loss against. Your accountant can confirm how this applies to you.

How Much Can a Negative Gearing Shortfall Cost You?

A shortfall is a cash cost you pay every week, so you should work it out before you sign. Consider an investor buying an established Rockdale property after 12 May 2026, using an illustrative interest rate of 6.75% p.a.

Say they borrow $600,000 on an interest-only loan. Interest is about $40,500 a year. Rent of $550 a week brings in $28,600. Add $5,000 a year for rates, insurance and management fees, and expenses total $45,500. The net rental loss is $16,900 a year, or about $325 a week. These figures are illustrative only.

The investor's first instinct is to count on a tax refund to cover that gap. Under the new rules, from the 2027-28 income year that loss cannot be deducted against their salary. It carries forward until they have residential property income to use it against.

So the investor plans around the cash shortfall instead. They set aside enough to cover $325 a week from their own income, and keep a buffer for vacancy. Their accountant confirms how the carried-forward loss would be used. The outcome is a plan that holds up even with no refund, and any tax benefit becomes a bonus rather than a requirement. Use our mortgage repayment calculator to run your own numbers.

Interest Only or Principal and Interest: Which Suits an Investor?

Interest-only keeps repayments lower for a set period, while principal and interest builds equity through repayments. Neither structure lets you deduct more than the interest you are charged.

The trade-off with interest-only is that your balance does not fall. When the period ends, repayments switch to principal and interest over the shorter remaining term, so they usually step up. Lenders also assess interest-only borrowing over that shorter remaining term, so the feature does not increase how much you can borrow. Interest-only periods are commonly one to five years, but terms vary by lender.

The right choice depends on your cash flow and your property investment strategy. If you plan to hold long term and pay down debt, principal and interest suits. If you need cash flow room in the early years, interest-only can work, provided you plan for the step up.

How Do Lenders Count Rent When Assessing Your Investor Borrowing?

Banks generally count no more than 80% of expected rent when they assess an investment loan. APRA's guidance expects a minimum 20% haircut on expected rental income to allow for periods without a tenant.

In the example above, $28,600 of rent might be counted as only about $22,880. That reduces your borrowing power compared with what you might expect. Lenders also tend to place less weight on a rental appraisal than on actual rent received.

Banks must also test your ability to repay at a rate at least 3.0 percentage points above the loan rate. So your serviceability is judged at a much higher rate than your actual repayments. Check where you stand with our borrowing capacity page before you start inspecting properties. Non-bank lenders are not bound by that buffer, but each has its own credit policy.

Does an Offset Account Change Your Tax Deduction?

Yes. An offset account reduces the interest charged on your loan, so the interest you incur, and can deduct, is lower. The loan balance itself stays the same.

That is still a sound trade for most investors. Paying less interest leaves you with more cash than keeping a larger deduction would. The catch is that cash in the offset is only useful while it stays there. Also, using borrowed funds for private purposes, such as redrawing equity for a holiday, can reduce the deductible portion of your loan. The ATO looks at how each amount of borrowed money is used. Keep investment and personal borrowing separate, and ask your accountant before drawing on equity.

Should You Review Your Existing Investment Loan?

If you already own an investment property, your loan structure and your rate are worth reviewing. Properties held at 12 May 2026 keep the earlier rules, so you want finance that supports holding them for the long term.

A loan health check shows whether your current rate, features and structure still suit you. If they do not, refinancing may help, although discharge and valuation costs can apply, so compare the full cost first. For investors thinking about the next purchase, our investment loans team can compare lenders across Australia and match the structure to your cash flow.

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