Negative Gearing and Rental Losses: Simple 2026 Guide

Negative gearing happens when your rental property expenses are more than your rental income.

In simple terms:

Rental income minus deductible rental expenses equals rental profit or rental loss.

If the result is a loss, that is commonly called a net rental loss.

That loss may reduce your other taxable income, such as salary, wages or business income.

But negative gearing does not automatically mean you get a refund.

The tax result depends on:

• how much rental income you received

• which expenses are actually deductible

• how much other income you earned

• how much tax was withheld

• whether your loan interest claim is correct

• whether the property was rented or genuinely available for rent

• whether private use or holiday-home use needs to be excluded

• whether any loss is carried forward

Negative gearing is not magic.

It is just maths.

And with rental property tax, the maths only works if the deductions are right.

GoTax helps Australian rental property owners complete tax returns online, with returns checked by registered tax agents before lodgement.

Start your rental property tax return online with GoTax

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What is negative gearing?

A rental property is negatively geared when the deductible costs of owning and renting the property are more than the rental income.

Common deductible rental expenses may include:

• loan interest

• property manager fees

• council rates

• water rates

• landlord insurance

• body corporate fees

• repairs and maintenance

• advertising for tenants

• cleaning

• pest control

• depreciation

• capital works deductions

• tax agent fees

The biggest expense is often loan interest.

That is why interest claims matter so much.

A rental property can feel like it is losing money because the mortgage repayment is high.

But tax does not treat the whole mortgage repayment as deductible.

Usually, the interest component is relevant.

The principal repayment is not.

Painful repayments are not the same as deductible expenses.

Very unfair.

Very tax.

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Simple negative gearing example

Let’s say your rental property has the following amounts for the year:

Item	Amount
Gross rental income	$30,000
Property manager fees	$2,500
Council rates	$2,200
Insurance	$1,400
Repairs and maintenance	$1,800
Loan interest	$35,000
Other deductible rental expenses	$2,100

Total deductible expenses are $45,000.

Rental income is $30,000.

That gives a net rental loss of $15,000.

That loss may reduce your other income when your tax return is prepared.

But the key words are:

may and deductible.

If part of the interest is private, or the repairs are actually improvements, or the property was not genuinely available for rent, the result can change.

Negative gearing only helps when the numbers are correct.

Creative maths is not a deduction method.

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A rental loss is not the same as a cash loss

This is important.

Your rental property cashflow and your rental tax result may be different.

That is because tax may include or exclude amounts differently.

For example:

Item	Cashflow result	Tax result
Principal loan repayment	Cash outflow	Usually not deductible
Loan interest	Cash outflow	May be deductible
Depreciation	No immediate cash outflow	May be deductible
Capital works	No immediate cash outflow after payment	May be deductible over time
Major improvement	Cash outflow	Usually not immediate repair deduction
Private-use cost	Cash outflow	Usually not deductible

So you might have poor cashflow but a smaller tax loss than expected.

Or you might have a tax loss partly because of depreciation or capital works, even though those are not yearly cash payments.

This is why refund estimates can change once the rental schedule is properly reviewed.

The bank account tells one story.

The tax return tells another.

They are related.

They are not twins.

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A rental loss does not automatically mean a refund

This is a common misunderstanding.

A rental loss may reduce taxable income.

But a refund depends on your full tax position.

That includes:

• salary and wages

• PAYG tax withheld

• business income

• other investment income

• Medicare levy

• HELP or student loan repayment

• tax offsets

• other deductions

• prior year issues

• ATO adjustments

Example:

If you have salary income and tax has been withheld during the year, a rental loss may reduce your taxable income and increase your refund.

But if you have little or no tax withheld, the same rental loss may not produce a refund.

If your other income is not enough to absorb the loss, some of the loss may carry forward.

Negative gearing is not an ATM.

It is a tax calculation.

Less satisfying.

More accurate.

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Loan interest is the big one

Loan interest is often the largest rental deduction in a negative gearing calculation.

But the purpose of the borrowing matters.

You may be able to claim interest where borrowed money was used to:

• buy the rental property

• fund rental property repairs

• fund rental property improvements, subject to correct treatment

• refinance an existing rental loan

• pay rental property expenses

But problems arise where the loan includes private use.

Examples include:

• redraw used to buy a private car

• redraw used for school fees

• redraw used for a holiday

• refinance partly used to renovate your own home

• mixed-purpose loan used for rental and private spending

• line of credit used for both rental and personal costs

The bank may call it an investment loan.

Tax law asks what the money was used for.

That means a $40,000 redraw for private spending can reduce the deductible interest claim.

The loan name does not save it.

The money trail matters.

Read: Can I Claim Interest on My Rental Property Loan?

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Redraws and refinancing can change the loss

A rental loss can be overstated if the interest claim is wrong.

This often happens with:

• redraws

• refinanced loans

• split loans

• offset confusion

• private payments made from investment loans

• consolidated debt

• mixed-purpose borrowings

Example:

You originally borrowed $600,000 to buy a rental property.

Later, you redraw $50,000 to buy a family car.

The loan balance is now $650,000.

But not all of the interest may relate to the rental property.

Part of the interest may relate to the private car.

If you claim 100% of the interest, the rental loss may be too high.

That can overstate your refund.

And overstated refunds have a habit of returning later with penalties attached.

Nobody wants a boomerang refund.

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Mortgage repayment is not the deduction

This catches first-time investors.

Your mortgage repayment may include:

• interest

• principal

• fees

• offset effects

• redraw movements

Generally, the interest component is the key rental deduction.

Not the full repayment.

Example:

Monthly repayment	Amount
Total repayment	$3,200
Interest component	$2,450
Principal component	$750

The potential interest deduction is not $3,200.

It is the interest component, subject to rental-use rules.

The principal repayment reduces your loan.

That is useful financially.

It is just not the same as a tax deduction.

Tax does not reward you for slowly owning the house.

It really should.

But it does not.

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The property must be rented or genuinely available for rent

A rental loss depends on the property being rented or genuinely available for rent.

This matters where the property was:

• newly purchased

• vacant

• being repaired

• being renovated

• used privately

• blocked for owner use

• not advertised

• advertised at unrealistic rent

• only available under unreasonable conditions

• a holiday home or Airbnb

You generally need evidence showing the property was available for rent.

Useful records include:

• rental listing

• property manager emails

• advertising screenshots

• open home reports

• tenant enquiries

• lease agreements

• rent appraisal

• vacancy dates

• repair timelines

• availability calendar

A property sitting empty is not automatically a rental property for tax purposes.

It needs to be genuinely available.

Tax is picky about the word “genuinely”.

As it should be.

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Negative gearing and first-year rental properties

First-year rental properties need care.

You may need to apportion expenses if:

• you bought the property during the year

• settlement happened part-way through the year

• the property was not immediately available for rent

• repairs were needed before first rental

• the property was your former home

• you used it privately before renting it

• substantial renovations happened before rental use

Do not claim a full year of expenses just because the property is now a rental.

Dates matter.

Important dates include:

• settlement date

• date first advertised

• date first available for rent

• date first tenant moved in

• private-use dates

• repair dates

• renovation dates

The first-year rental loss may be smaller than expected if the property was only rented or genuinely available for part of the year.

The calendar is not being difficult.

It is doing its job.

Read: First Year Rental Property Tax Return: What to Know

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Repairs, improvements and rental losses

Repairs can affect a rental loss.

But not every property cost is an immediate repair deduction.

A genuine repair may be deductible sooner.

An improvement may need to be claimed over time.

An initial repair may be capital where the defect existed when the property was acquired.

Examples:

Cost	Practical issue
Fix leaking tap caused during tenancy	May be repair
Repair storm damage during rental period	May be repair
Replace entire kitchen	Likely capital/improvement issue
Renovate bathroom	Likely capital issue
Fix damage that existed at purchase	Initial repair/capital issue
Add a deck	Capital improvement

If an improvement is incorrectly claimed as a repair, the rental loss may be overstated.

That can make the refund estimate look better than it should.

A refund estimate based on the wrong category is not a refund estimate.

It is fan fiction.

Read: Repairs vs Improvements: Rental Property Tax Rules 2026

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Travel costs usually do not help your rental loss

For ordinary individual landlords, travel to inspect, maintain, repair or collect rent for a residential rental property is generally not deductible.

That means you generally should not include:

• kilometres

• fuel

• flights

• accommodation

• meals

• Uber or taxi costs

• hire cars

• parking

• tolls

This can surprise landlords because the travel may genuinely relate to the property.

But the law specifically denies many residential rental property travel claims.

The practical treatment is:

Do not claim the owner’s travel. Claim the actual rental expense if it qualifies.

For example:

Cost	Practical treatment
Owner travel to inspect rental	Generally not deductible
Owner travel to repair rental	Generally not deductible
Materials used for genuine repair	May be deductible
Tradesperson invoice	May be deductible if it qualifies
Property manager inspection fee	May be deductible if rental-related

The trip may be out.

The repair may still be in.

Annoying, but workable.

Read: Can I Claim Rental Property Travel Costs?

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Holiday homes and Airbnb losses need extra care

Holiday homes and short-term rentals can create rental losses.

But private use may reduce or deny deductions.

You need to track:

• rented days

• available days

• private-use days

• family-use days

• friends staying free

• friends staying cheaply

• blocked dates

• peak periods kept for owner use

• repair periods

• platform income

• platform fees

• cleaning costs

A holiday home is not automatically treated like a full-time rental property.

If the property is partly private, deductions may need to be apportioned.

If peak periods are blocked for private use, the rental position may be weaker.

If the property is not mainly used to derive rent, holding costs can become a bigger problem.

The loss is only useful if the deduction claim survives contact with the facts.

Holiday homes have facts everywhere.

Usually in the booking calendar.

Read: Holiday Homes, Airbnb and Private Use: What Can You Claim?

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ATO interest is not rental loan interest

This is a newer trap for 2026.

From 1 July 2025, general interest charge and shortfall interest charge are generally no longer deductible.

Do not confuse ATO interest with rental property loan interest.

Interest type	Practical tax issue
Bank interest on rental property loan	May be deductible if connected to rental purpose
Interest on private redraw portion	Not deductible to the extent private
ATO general interest charge	Generally not deductible from 1 July 2025
ATO shortfall interest charge	Generally not deductible from 1 July 2025

If the ATO charged interest because tax was paid late or amended, do not put that into rental property interest.

That is not negative gearing.

That is just the ATO charging interest.

Different beast.

Sharper teeth.

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Can negative gearing reduce PAYG withholding?

If your rental loss is likely to reduce your year-end tax liability, you may be able to apply for a PAYG withholding variation.

That can reduce the tax withheld from your wages during the year.

But be careful.

If the rental loss is overestimated, you may end up with tax payable later.

A variation should be based on realistic numbers.

Not wishful numbers.

This means checking:

• expected rent

• expected loan interest

• likely repairs

• private-use adjustments

• whether deductions are actually allowable

• other income

• expected tax withheld

A PAYG variation is not a refund guarantee.

It is a cashflow tool.

Used carefully, helpful.

Used carelessly, future-you gets a tax bill and starts asking questions.

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Negative gearing records you need

Keep records for:

• rental income

• property manager statements

• Airbnb or short-term rental statements

• loan interest summaries

• full loan statements

• refinance documents

• redraw records

• offset account records

• council rates

• water rates

• insurance

• body corporate fees

• repairs and maintenance

• depreciation schedule

• capital works records

• private-use calendar

• vacancy records

• advertising records

• ownership percentage

• settlement statement

• first available for rent date

• co-owner split records

For rental losses, records matter because the loss may reduce other income.

That makes the claim more visible.

Good records make the loss defensible.

Bad records make it look like a guess.

And guessing is not negative gearing.

It is just typing with confidence.

Read: What Rental Property Records Do You Need for Tax?

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Common negative gearing mistakes

Avoid these:

Mistake	Why it matters
Assuming a rental loss automatically means a refund	Refund depends on full tax position
Claiming the whole mortgage repayment	Principal is usually not deductible
Claiming full interest after private redraws	Interest may need apportionment
Ignoring refinanced private debt	Mixed-purpose loans can overstate losses
Claiming full-year expenses for part-year rental	Expenses may need apportionment
Claiming travel costs	Usually denied for ordinary residential landlords
Treating improvements as repairs	Loss may be overstated
Ignoring private use	Expenses may need reduction
Relying only on agent statement	Important costs and adjustments may be missing
Claiming ATO interest as rental interest	GIC and SIC generally no longer deductible from 1 July 2025
Forgetting co-owner splits	Income and deductions usually follow ownership
Missing carried-forward loss issues	Not all losses produce immediate refund benefit

The biggest mistake is thinking negative gearing is the goal.

It is not.

The goal is a correct rental schedule.

Negative gearing is just the result if the correct numbers produce a loss.

Less glamorous.

Much safer.

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Practical GoTax position for 2026

For 2026, the practical GoTax position is:

• declare all rental income

• use gross rent, not just net transfers

• claim only deductible expenses

• check loan interest carefully

• exclude private redraw interest

• separate repairs from improvements

• do not claim owner travel

• track private-use periods

• keep holiday-home calendars

• check first-year rental dates

• keep strong records

• do not assume a rental loss guarantees a refund

Negative gearing can be useful.

But only when the loss is real, deductible and properly recorded.

The ATO does not object to a proper rental loss.

It objects to bad claims wearing a negative gearing hat.

Fair enough.

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How GoTax helps

GoTax helps rental property owners complete tax returns online.

The system prompts you through rental income and expense areas, and your return is checked by registered tax agents before lodgement.

That can help with:

• rental income

• net rental losses

• negative gearing

• property manager statements

• loan interest

• redraw and refinance issues

• repairs and improvements

• first-year rental dates

• private-use adjustments

• Airbnb and holiday homes

• travel claim traps

• rental records

• co-owner splits

• common ATO problem areas

GoTax rental property tax returns start at:

$109 for one rental property

Additional rental properties are:

$40 per additional rental property

Start your rental property tax return online with GoTax

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Quick checklist before relying on a rental loss

Before lodging, ask:

• Did you declare all rental income?

• Did you use gross rent, not just net transfers?

• Was the property rented or genuinely available for rent?

• Did you check part-year rental dates?

• Did you claim interest only on rental-purpose borrowings?

• Were there redraws?

• Was the loan refinanced?

• Was any loan portion private?

• Did you claim only interest, not principal?

• Were repairs separated from improvements?

• Did you exclude private-use periods?

• Did you avoid owner travel claims?

• Did you keep Airbnb or holiday-home calendars?

• Did you keep property manager statements?

• Did you keep loan and repair records?

• Did you understand that a loss does not automatically mean a refund?

If the rental loss still stands after those questions, excellent.

If not, fix it before lodgement.

That is much cheaper than fixing it after the ATO asks.

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Frequently asked questions

What is negative gearing?

Negative gearing happens when deductible rental property expenses are more than rental income, creating a net rental loss.

Does negative gearing mean I get a tax refund?

Not automatically. A rental loss may reduce taxable income, but your refund depends on your full tax position, including income, tax withheld, offsets and other debts.

Can I claim the full mortgage repayment?

No. The interest component may be deductible if it relates to the rental property. Principal repayments are usually not deductible.

Can I claim all loan interest?

Only where the borrowed money relates to the rental property or rental purpose. Private redraws, refinancing and mixed-purpose loans may reduce the deductible interest.

What happens if my rental loss is more than my other income?

If your other income is not enough to absorb the rental loss, the remaining loss may be carried forward to the next income year.

Can I claim a loss if the property was not rented?

You generally need the property to be rented or genuinely available for rent. Vacant, private-use or unavailable periods may affect deductions.

Can Airbnb or holiday homes be negatively geared?

They can produce rental losses, but private use, blocked dates and whether the property is genuinely available for rent can affect deductions.

Can I claim travel costs as part of my rental loss?

Ordinary individual landlords generally cannot claim travel costs to inspect, maintain, repair or collect rent for a residential rental property.

Can GoTax help with negative gearing and rental losses?
 

How is a rental loss calculated?

Rental income minus deductible rental expenses equals rental profit or rental loss. Take gross rent of $30,000 against deductible expenses of $45,000 — property manager fees, council rates, insurance, repairs, loan interest and other allowable costs — and the result is a $15,000 net rental loss that may reduce other taxable income.

Is a rental loss the same as a cash loss?

No. Cashflow and the tax result differ. Principal loan repayments are cash outflows but usually not deductible. Depreciation and capital works are deductible without a yearly cash payment. Major improvements are cash outflows but not immediate repair deductions. You can have poor cashflow with a smaller tax loss than expected, or a tax loss driven partly by depreciation.

How do redraws and refinancing affect a rental loss?

They can overstate it. Where you borrowed $600,000 to buy a rental and later redrew $50,000 for a family car, the balance is $650,000 but not all the interest relates to the rental property. Claiming 100% of the interest makes the loss too high and overstates the refund. Split loans, offset confusion, consolidated debt and private payments from investment loans all create the same risk.

Can I reduce my PAYG withholding because of negative gearing?

Possibly. Where a rental loss is likely to reduce your year-end tax liability, you may be able to apply for a PAYG withholding variation to reduce tax withheld from wages during the year. The variation must be based on realistic numbers — expected rent, loan interest, likely repairs, private-use adjustments, other income and expected withholding. An overestimated loss produces a tax bill later.

Do I need to apportion expenses in the first year of renting?

Yes, in many cases. Where the property was bought during the year, settled part-way through, was not immediately available for rent, needed repairs before first rental, was your former home, was used privately before renting, or underwent substantial renovations, expenses may need apportioning. Record the settlement date, date first advertised, date first available for rent, first tenant date, private-use dates, repair and renovation dates.

Is ATO interest part of a negative gearing claim?

No. From 1 July 2025, general interest charge and shortfall interest charge are generally no longer deductible. ATO interest charged because tax was paid late or a return was amended is not rental property loan interest and should not be included in the rental schedule.

Yes. GoTax helps Australian rental property owners complete tax returns online, including rental losses, loan interest and private-use issues, with returns checked by registered tax agents before lodgement.

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About the Author

Written by Mark Walmsley, Chartered Accountant and Registered Tax Agent.

GoTax helps Australians complete their tax returns online, with returns checked by registered tax agents before lodgement.

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General Information Disclaimer

This article provides general information only and does not take into account your personal circumstances. Tax law can change and rental loss treatment depends on rental income, deductible expenses, loan purpose, private use, ownership, records, property availability and your overall tax position. If you are unsure, seek advice from a registered tax agent.