Negative Gearing in 2025: Still Worth It or Time for a Rethink?

Over 2.2 million Australians claimed deductions against their rental income across 3.25 million properties (over the 2020-21 financial year). 47% of these property investors negatively geared their properties, making it one of the most widely used property investment strategies in the country. However, with rising interest rates, ongoing tax reform discussions, and a strained housing market, is negative gearing still as appealing as it once was?

This article explores how negative gearing works, who benefits the most, and whether it remains a smart strategy in today’s property environment.

What Is Negative Gearing?

Negative gearing is a tax strategy that allows property investors to offset rental losses against their other taxable income, reducing their overall tax bill.

• This happens when the costs of owning an investment property (loan interest, property maintenance, and other expenses) exceed the rental income.
• Investors accept short-term losses in the hope that capital growth will lead to long-term profits when the property is eventually sold.

Example: How Negative Gearing Works

• You own an investment property with a $400,000 mortgage.
• Your total annual costs (interest, maintenance, property management fees) = $30,000.
• Your rental income = $25,000, leaving a $5,000 shortfall.
• This $5,000 loss can be deducted from your taxable income, lowering the amount of tax you pay.

Why Has Negative Gearing Been So Popular in Australia?

Negative gearing has remained a go-to strategy for investors for a number of reasons, including:

• Tax Benefits – Investors can reduce their taxable income, making it particularly attractive for high earners.
• Capital Growth Potential – Australia’s property market has historically delivered strong price growth over a consistent period.
• Ease of Entry – Property is seen as a stable, long-term investment, easier to understand than shares or other asset classes.

Who Benefits Most?

• High-income earners who can claim bigger tax deductions.
• Investors targeting high-growth suburbs where capital gains will outweigh short-term losses.

Who Should Be Cautious?

• Low-income investors who don’t receive much tax benefit from negative gearing.
• Investors without a financial buffer to cover shortfalls or cash flow struggles, especially when interest rates riset.

What Expenses Can Be Deducted Under Negative Gearing?

A major appeal of negative gearing is the range of tax-deductible expenses that help offset financial losses. These include:

• Loan interest repayments: The largest expense for most investors.
• Property management fees: If you use a real estate agent.
• Repairs & maintenance: Covers fixing damage, plumbing, electrical, etc.
• Depreciation: Deducting the declining value of fittings, appliances & buildings.
• Council & strata fees: Ongoing property ownership costs.
• Insurance, legal & accounting fees: Costs related to managing your investment.

Example: How Deductions Work

• Rental income = $20,000.
• Expenses (interest, maintenance, agent fees, insurance) = $20,500.
• $500 loss can be deducted from taxable income, reducing tax payable.

Will Negative Gearing Rules Change?

Negative gearing has been a political battleground for decades, with discussions around reforms gaining momentum yet again.

• In 2019, Labor’s proposal to limit negative gearing was seen as a major factor in losing the election, according to Mark Bouris who said recently that the issue “cost Bill Shorten the ‘unlosable election’.”
• In 2024, Labor ruled out any immediate changes, but industry experts warn future reforms remain on the table.

Potential Policy Changes

• Caps on deductions: Limiting the amount investors can claim each year.
• Grandfathering rules: Allowing current investors to keep benefits but restricting them for new purchases.
• Reducing capital gains tax (CGT) discounts: Lowering the 50% CGT discount available for properties held over 12 months.

YBR Home Loans Founder Mark Bouris warns against changes in the current climate: “35% of all buyers are investors. If you want to kill off new housing developments, bringing in negative gearing restrictions is a great way to do it. We’ve seen this before—when negative gearing was briefly removed in the 80s, rents skyrocketed, and the policy was scrapped within two years.”

Is Negative Gearing Still Worth It in 2025?

The viability of negative gearing depends on your financial position and investment strategy.

Key Considerations

• Rising interest rates: Despite last month’s rate cut, the cash rate remains at its highest since 2012. Holding a negatively geared property has become far more expensive than in recent years.
• Rental market trends: Higher rents are helping offset losses but may not fully cover increased costs.
• Risk vs. reward: Investors must weigh short-term losses against long-term capital growth potential.

A Quick Checklist:

• Do you have the cash flow to handle short-term losses?
• Is your property in a high-growth area where capital appreciation will make up for the losses?
• Can you handle higher mortgage repayments if rates rise further?

If the answer is no to any of these, it might be worth reconsidering your strategy.

What Are the Alternatives to Negative Gearing?

If negative gearing feels too risky, here are some other investment strategies worth considering:

• Positive Gearing: Where rental income exceeds expenses, providing immediate cash flow.
• Equity Recycling: Using equity from existing properties to fund new investments without running a loss.
• High-Growth Areas: Focusing on suburbs with strong price appreciation, even if rental yields are lower.

Negative gearing isn’t a one-size-fits-all strategy. While it remains a powerful tax tool for investors with strong cash flow, its benefits depend heavily on market conditions and future policy changes.

• For high-income, long-term investors – Negative gearing may still be worthwhile.
• For those struggling with rising costs – Alternative strategies like positive gearing may be safer.

What’s Next?

If you’re considering property investment or refinancing, speaking to an experienced mortgage broker can help tailor the right strategy for you.

Need expert advice? Get in touch with YBR Home Loans today.