If you own an investment property, or are thinking of buying one, it's positively geared when the rent is more than the costs you can claim for it, including the interest on the loan. The property makes a profit on paper, and that profit is added to your other income and taxed at the same rates as your wages.

Negative gearing is the reverse: the costs are more than the rent, and the loss can generally reduce the tax on your other income. A 2026 law changes that from 1 July 2027 for most established homes acquired after 7.30pm AEST on 12 May 2026. Broadly, an established home is one that isn't newly built.

If your rental makes a profit, it's still taxed as before, and the profit can absorb losses on rentals caught by the change. This is general information from the ATO and the law, not financial or tax advice.

What is positive gearing?

A property is positively geared when the rental income is more than the expenses. That's how Treasury describes it, and it says the excess is "taxed at the individual's marginal rates", which means the rate you pay on the top slice of your income.

"Gearing" means borrowing to invest, and the ATO describes negative gearing in terms of a rental bought with borrowed money. But it's the tax result that decides which kind a property is: the rent against the expenses you can claim as deductions.

People also talk about a property being "neutrally geared" when the rent and the deductible costs are about the same. That's an informal term, not a tax one.

Positive gearing vs negative gearing

The difference is whether the property makes a taxable profit or a loss for the year.

A property can move between the two. If interest rates rise and your loan is on a variable rate, the interest you pay goes up, and a property that was making a small profit can tip into a loss.

Positive gearing vs positive cash flow

Gearing is the tax result for the year. Cash flow, sometimes written "cashflow", is the money that actually goes in and out of your account.

Two things make the difference:

• Loan principal. Only the interest part of each loan repayment is a deduction. The part that pays down the loan itself is money out of your pocket, but it never counts as a cost for tax.
• Costs you don't pay in cash that year. Deductions for the building itself (called capital works deductions) and for the wear on fittings such as carpets and appliances (often called depreciation) reduce your taxable profit. But they spread a cost across later years, and it was often paid in an earlier year or by an earlier owner.

So a property can make a taxable profit while you're still putting money in to cover the principal. And a property can be negatively geared on paper while the rent more than covers what you pay out each month.

To check your own property, work out three numbers for a year:

1. Rent received.
2. Rent less every deductible cost, including interest and any capital works or depreciation. If it's above zero, the property is positively geared.
3. Rent less everything you actually paid that year, including the principal part of your repayments and anything you bought for the property. Leave out capital works and depreciation. If it's above zero, it's cash-flow positive before tax.

Which costs can you claim?

You can claim the costs of earning the rent while the property is rented, or genuinely available for rent on commercial terms. The ATO's Rental properties guide lists them in full.

Costs you can claim straight away

• interest on the loan used to buy the property
• council rates, water charges and land tax
• insurance, including landlord and building insurance
• property management fees and advertising for tenants
• repairs and maintenance for wear and tear or damage that happened while it was rented
• regular body corporate fees, pest control, cleaning and gardening

Costs you can claim over several years

• Capital works. Usually 2.5 per cent a year of the building's construction cost, for homes whose construction started after 15 September 1987. At that rate, the claim runs for 40 years. The right to claim what's left passes to each new owner, so you don't have to be the first.
• Fittings and appliances. Their depreciation (the ATO calls it decline in value) can be claimed over their effective life. If you bought an established home after 7.30pm on 9 May 2017, you generally can't claim it for the fittings that were already there, but you can for new ones you buy.
• Borrowing costs such as loan establishment fees and lender's mortgage insurance. If they're more than $100, they're generally spread over five years, or over the loan term if that's shorter.

Costs you can't claim

• the part of each loan repayment that reduces the loan itself
• the purchase price, stamp duty on the transfer and conveyancing fees when you bought (these go into the property's cost for capital gains tax instead)
• improvements, such as a new kitchen, and repairs to defects that were there when you bought (you can't claim these straight away, but parts may be claimable over time as capital works or depreciation)
• travel to inspect or maintain a residential rental (generally not claimable since 1 July 2017)
• interest on any part of the loan used for private purposes, such as a redraw for a holiday

How can you tell if a property will be positively geared?

No suburb or property is positively geared in itself. It depends on the rent, the price you pay and your loan, so the numbers to check are the ones for the property you're looking at.

Work out its likely rent against every cost you'd claim, using the interest on the loan you'd actually take out. A listing described as "positively geared" may leave costs out, such as letting fees, land tax, body corporate fees, repairs and weeks without a tenant.

Then test the result. Try it at a higher interest rate, and with the rent a few weeks short. If the property only stays positively geared with every week rented and today's rate, it's close to the line.

Our guide on what to look for when buying an investment property covers the checks beyond the numbers.

How much tax do you pay on a positively geared property?

There's no separate tax on a positively geared property. The net rental profit (rent less your deductible costs) is added to your wages and other income, and the total is taxed at your marginal rates, plus the 2 per cent Medicare levy for most people.

For 2026–27, the rates for Australian residents are:

So the tax on your rental profit depends on where your total income lands, not on a single rate. If your profit pushes your income over a threshold, only the part above it is taxed at the higher rate.

A profitable rental can also mean paying tax in instalments during the year. The ATO says you'll generally need to pay PAYG (pay as you go) instalments if you have $4,000 or more of investment income, such as rent, and more than $1,000 owing on your tax assessment. The ATO will tell you if this applies.

A worked example

On a rental profit of $8,000, someone with $90,000 of other taxable income would pay about $2,560 in extra tax for 2026–27. Here's how it's worked out.

This is a made-up example using round figures to show how the steps fit together.

Jordan is an Australian resident with $90,000 of taxable income from their job. Jordan owns one rental, in their own name, bought with a loan used only for that property. It was rented all year and brought in $36,000 in rent for 2026–27.

Here are Jordan's costs for the year. The repairs fixed wear and tear.

The tax result. Rent of $36,000 less $28,000 of deductible costs leaves a net rental profit of $8,000, so the property is positively geared. Jordan's taxable income becomes $98,000.

The tax. All $8,000 falls in the 30 per cent band, so the extra income tax is $2,400, plus $160 of Medicare levy. That's $2,560 in total, which leaves $5,440 of the profit after tax.

The cash. Jordan also repaid $6,000 of the loan itself, which isn't a deduction, and the $3,000 capital works deduction wasn't cash spent this year. That leaves $5,000 of cash before tax, which is $36,000 of rent less $25,000 of cash costs and $6,000 of principal. After the $2,560 of tax, $2,440 is left.

If Jordan's other taxable income were $150,000 instead, the same $8,000 profit would be taxed at 37 per cent plus the Medicare levy: $3,120 in total. The example leaves out tax offsets, the Medicare levy surcharge and anything else that could change the result.

Is positive or negative gearing better?

Neither is better in itself. It depends on your income, how long you plan to hold the property, how much of the price you borrow and what happens to its value.

With a positively geared property, you make a taxable profit for the year. With a negatively geared one, you make a loss on paper, which some owners accept in the hope of a capital gain when they sell.

Two things to weigh up:

• Rates move. As Moneysmart puts it, a rise in interest rates will mean higher repayments and lower disposable income.
• Empty weeks still cost money. Moneysmart warns not to rely on rental income to cover the mortgage, because there may be times when the property is empty.

A registered tax agent can work out your own figures, and a licensed financial adviser can say whether a property fits your plans.

What changed for negative gearing in 2026?

Under a law passed in June 2026, a rental loss on most established homes acquired after 7.30pm AEST on 12 May 2026 can't reduce the tax on your other income from the 2027–28 income year. The net profit on your other residential rentals, old or new, can still absorb that loss.

For a positively geared property, this means:

• If your rentals caught by the change don't make a loss between them, and you have no losses on them carried forward from earlier years, the change doesn't affect the tax on your rental profits.
• If they do make a loss, the net profit from your other residential rentals that year comes off it first. Whatever's left over is the part that can't be taken off your wages or other income.
• Losses on rentals the change doesn't catch, such as those you held before the cutoff, still come off your other income, as before.

The change was announced in the Federal Budget on 12 May 2026 and became law on 26 June 2026, in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Here's how it works:

• Properties you held, or had signed a contract for, before 7.30pm AEST on 12 May 2026 keep the old negative gearing treatment until you sell them.
• A share acquired after that time, even in one of those properties, doesn't keep it, and neither does a property you buy to replace one. There are exceptions for some transfers after a death or a relationship breakdown.
• For most established homes acquired after that time, in any year from 1 July 2027, a loss left over after your other residential rental profits can't be taken off your wages or other income. It can be used against capital gains on residential property that year, and anything still left is carried forward to come off residential rental profits and gains in later years.
• New homes are excluded, but what counts as a new home isn't settled yet. A bill that would define it was introduced on 14 October 2026 and hadn't passed as at 27 October 2026.
• 2026–27 isn't affected. Losses for the year to 30 June 2027 can still reduce your other income, whenever you bought.

Under the bill introduced on 14 October 2026, a home you buy from someone else would generally only count as new if its first occupancy certificate (the approval to live in it) was issued after 7.30pm AEST on 12 May 2026, and you buy it within 24 months of that certificate. This test applies even if nobody has lived in the home.

Where you buy under a contract, the 24 months is usually counted to settlement, not to the day you sign. For an off-the-plan home (one you sign up to buy before it's finished), settlement normally comes after the certificate is issued.

The ATO explains the changes on its page about reforming negative gearing and capital gains tax.

What happens when you sell?

When you sell a rental, you'll generally pay capital gains tax on the gain, whether it was positively or negatively geared. The gain is added to your income for the year you sign the contract.

Under the current rules, if you've owned the property for at least 12 months and you're an Australian resident, generally only half the gain is taxed, once any capital losses are taken off. This is the 50 per cent CGT discount. Time spent as a foreign or temporary resident while you owned it can reduce the discount.

The capital works deductions you've claimed, or could have claimed, generally come off the property's cost, so they make the taxable gain bigger.

Under the 2026 law, if you sign the contract to sell on or after 1 July 2027, the part of your gain made from that date isn't halved, regardless of when you bought. Instead, if you've owned the property for at least 12 months, its cost (or its value on 1 July 2027, if you owned it then) is adjusted for inflation.

A minimum tax can top up the tax on that part to 30 per cent, mainly when your other income is low.

If you own an eligible new home, or a home used for affordable housing, you can keep the current rules, including the 50 per cent discount. Separately, the government is still developing a way to split the gain at 1 July 2027 without a valuation.

Our guide to tax on selling an investment property works through an example and explains the split at 1 July 2027. If you're weighing up whether to sell, our guide on when to sell an investment property covers the timing, and how selling costs are treated for tax covers the costs.

Where this information comes from

This guide is based on the ATO, Treasury, Moneysmart, the Income Tax Assessment Act 1997 and Parliament's papers on the 2026 bills, checked on 27 October 2026. Tax rules change, so check the ATO for the year you're working on.

• ATO: Rental properties 2026, the guide to rental income and deductions for 2025–26
• ATO: tax rates for Australian residents
• ATO: capital gains tax reform, which the ATO updates as later stages of the law pass
• Treasury: Tax White Paper, negative gearing, for the definitions
• Moneysmart: buying an investment property, which still describes the 2026 changes as announced. They became law in June 2026.