Negative Gearing in Australia 2025: Benefits, Risks & Policy Updates

Negative gearing has long been a defining feature of Australia’s property investment landscape. But as 2025 brings fresh tax policy debates, shifting interest rates, and evolving housing market conditions, many Australians are asking: is negative gearing still a worthwhile strategy?

What Is Negative Gearing—and Why Has It Been So Popular?

Negative gearing occurs when the costs of owning an investment property (like mortgage interest and maintenance) exceed the income it generates, resulting in a net rental loss. This loss can be offset against your taxable income, reducing your overall tax bill. For decades, it’s been a favourite tool for both seasoned investors and everyday Australians looking to build wealth through property.

• Tax deduction: Rental losses reduce your taxable income, potentially lowering your annual tax bill.

• Long-term capital growth: Investors often accept short-term losses, banking on the property’s value to rise over time.

• Portfolio diversification: Negative gearing allows entry into the property market with lower upfront cash, especially during periods of strong capital appreciation.

According to the Australian Taxation Office, over 1.2 million Australians claimed rental property losses in the 2022-23 financial year, with the majority using negative gearing to do so.

2025 Policy Updates: What’s Changing?

Negative gearing has been a political football for years, with both major parties periodically floating reforms. For 2025, several noteworthy developments have emerged:

• Cap on deductible losses: The Federal Government is considering a cap on the amount of rental loss that can be offset against wage income, aimed at curbing the tax advantage for high-income investors.

• Interest deductibility tightening: Some states are exploring stricter rules around what interest expenses can be claimed, particularly for properties not genuinely available for rent.

• Increased ATO scrutiny: The ATO has ramped up data-matching and compliance efforts in 2025, targeting over-claimed expenses and ensuring investors only deduct legitimate losses.

While no sweeping changes have passed federally as of June 2025, state-based tweaks and the prospect of a federal cap are already influencing investor sentiment.

Benefits and Risks of Negative Gearing in the Current Climate

With higher interest rates and the government’s focus on housing affordability, the investment calculus is shifting. Here’s what investors need to weigh in 2025:

• Cash flow crunch: With average variable mortgage rates hovering above 6.5% in early 2025, rental yields often fail to cover loan repayments. Investors must be prepared to absorb ongoing losses—sometimes for several years.

• Tax savings aren’t guaranteed: If your overall income drops (for example, due to redundancy or retirement), the value of those tax offsets diminishes.

• Uncertain capital growth: After a decade of strong appreciation, property prices in some cities have plateaued. Relying on capital gains to make negative gearing “work” is riskier than it once was.

• Policy risk: The potential for future government changes adds another layer of uncertainty for long-term investors.

Take the example of Emma, a Sydney-based engineer who purchased a negatively geared investment unit in 2022. With repayments rising by $600 a month due to rate hikes, and rents only partially offsetting the increase, her annual tax benefit has shrunk—even as her out-of-pocket costs grow. She’s now reassessing her strategy, especially as talk of policy caps heats up.

Alternatives and Strategic Considerations

Negative gearing isn’t the only path to property wealth in 2025. Some investors are pivoting to:

• Positive cash flow properties: Regional areas or smaller units can offer yields that cover costs, providing income from day one.

• REITs and property trusts: Listed real estate funds provide property exposure without the direct risks and management headaches of physical assets.

• Renovation and value-add: Some are turning to renovation projects that can boost rental income or allow for a profitable flip, bypassing the need to rely solely on tax offsets.

The key in 2025 is strategic flexibility. Investors should run the numbers, stress-test their assumptions, and factor in the potential for future rule changes before leaping in.

Conclusion: Does Negative Gearing Still Stack Up?

Negative gearing remains a powerful tool for some, but it’s no longer a guaranteed ticket to wealth. With policy changes on the horizon and market conditions in flux, Australian investors must weigh the benefits against the rising risks. Carefully crunch the numbers, stay attuned to tax rule updates, and consider whether positive cash flow or alternative strategies might better suit your goals in the current climate.