Does negative gearing make a loss disappear?

By Howloop · Updated 18 Sept 2026 · Sources & update record

Negative gearing means an investment funded with borrowing makes a tax loss. A possible tax saving does not turn that loss into free money.

ONE SIMPLE EXAMPLE · A loss still costs money

Illustrative rent received: $20,000
Assumed deductible rental costs: $26,000
Rental loss: $6,000
Tax reduction at a made-up 30% rate: $1,800
Loss remaining after that reduction: $4,200

Teaching arithmetic only, assuming the whole loss can offset income at 30%. It is not a personal tax rate, current entitlement or future-law calculation. Cash flow and taxable losses can differ.

Read the rule-change summary

Cash flow and tax are different

A loan payment may contain both interest and repayment of debt. The principal repayment is not a rental deduction. Some capital costs are deducted over time rather than immediately, so your cash shortfall and tax loss may be different.

The use of borrowed money matters

Interest treatment depends on what the borrowed funds were used for. A loan secured against a rental property can still fund private spending. Mixed uses need records and apportionment; a property label alone does not determine deductibility.

Do not buy only for a deduction

Consider vacancies, maintenance, interest changes and what happens if the property value falls. The date you acquire an established property also matters under the upcoming reforms. Read the dated change note before relying on a loss offset against wages.

See the loss after a hypothetical tax benefit

Imagine annual rent of $30,000 and $34,000 of expenses that are all assumed deductible for this example. The rental tax loss is $4,000. If that entire loss could reduce other income taxed at a made-up 30%, the tax reduction would be $1,200, leaving $2,800 of the loss after that benefit. This is arithmetic, not a current entitlement or personal tax estimate. It excludes levies, other income interactions and the future-law changes described above. A smaller loss after tax is still a cost to fund.

Build a cash column next to the tax column

List the actual money received and paid during the period. Then, separately, identify the tax treatment to check for each entry. A hypothetical $12,000 principal repayment is money leaving your account to reduce debt; it is not another $12,000 rental deduction. An amount deducted over time can affect taxable results differently from cash paid this year. Comparing the two columns helps explain why a tax loss can differ from the shortfall you need to cover each month. Do not use the tax figure as your whole household budget.

Try a vacancy and repair scenario

Using the $30,000 annual rent example, a simple one-month gap removes about $2,500 of expected rent. Add a hypothetical $3,000 repair bill and the cash pressure rises by $5,500 before considering any tax treatment. This does not say that every repair is immediately deductible. The exercise asks whether the available buffer could carry an interruption without assuming a refund arrives first. Repeat with the loan interest and property costs in your own quotes; do not keep the advertised rent in every scenario.

Keep acquisition and borrowing records together

Save the purchase date and contract, rental statements, loan drawdowns, expense records and a clear explanation of how borrowed funds were used. Flag any private use instead of assuming that every payment on a property-secured loan belongs to the investment. Before relying on losses to offset wages, check the rules for the property, ownership and relevant year, including the upcoming restrictions in the reform note. The investment still needs to make sense when its future sale price, occupancy and costs differ from your first estimate.

A QUICK CHECK

You spend $1 to save 30 cents of tax. Have you made a profit?

Sources checked 18 Sept 2026 Next review 2 Oct 2026

Sources & update record

Expanded with original worked examples, practical checks and common mistakes. Current rule notes remain separate from illustrative arithmetic.

Published 18 Sept 2026 · Updated 18 Sept 2026. These dates do not guarantee rules are unchanged.

Published by Howloop. AI assists preparation. This lesson has not been reviewed by a licensed financial adviser. How we check our content →