Avoid These 4 Negative Gearing Mistakes as an Investor

Negative gearing now depends heavily on when you buy the property. If you are weighing up an investment loan in Chadstone, check your purchase date and property type before you look at any lender.

Negative gearing means your rent does not cover your loan interest and other holding costs, so the property runs at a loss. For some investors that loss can still be claimed. For others, from the 2027-28 income year, it can only be used in a narrower way. The four mistakes below are the ones worth avoiding.

Mistake 1: Assuming a Rental Loss Can Always Offset Your Salary

No. Whether a rental loss can offset your salary depends on when you acquired the property and whether it is an established home or an eligible new build.

Losses on residential investment properties held at 7:30pm AEST on 12 May 2026, including those under contract awaiting settlement, continue to be deductible against other income, including wages, until the property is sold. Losses on eligible new builds acquired after that time can also be deducted against all income. Eligible new builds include dwellings on previously vacant land, and dwellings that replace an existing property where the number of dwellings increases.

From the 2027-28 income year, net rental losses on established residential properties acquired after that time can only be deducted against other residential property income, including capital gains on residential property. Unused losses carry forward. Properties acquired between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.

Here is an illustrative example at 6.75% p.a. Consider a Chadstone-area buyer who signs a contract on an established house after 12 May 2026 with an investment loan of $500,000, interest-only. Interest is about $33,750 a year. Say rent is $26,000 and other holding costs, such as rates, insurance and management fees, are $6,000. The net loss is $13,750, or roughly $264 a week out of pocket before any tax effect.

Under the old approach, that loss would reduce their salary income. Under the new rule, from the 2027-28 income year the loss is carried forward against future residential property income, such as rent once it exceeds costs, or a residential capital gain. A buyer in this position should model the cash flow with no salary offset from 2027-28 and check they can hold the property without relying on a tax refund. Your accountant can confirm how this applies to you.

Mistake 2: Treating the Tax Deduction as the Strategy

A tax deduction offsets part of a cost. It does not turn a loss into a gain. You still pay the full interest and holding costs out of pocket first, and any deduction only reduces the tax you pay on other income.

A sound property investment strategy starts with whether you can hold the property through vacancies, repairs and rate rises. Banks assess your repayments at a rate at least 3.0 percentage points above the loan rate, and they generally count no more than 80% of expected rent. That means your borrowing capacity may be lower than the rent figure suggests.

If you are comparing structures, our investment loans team can show how different loan amounts and rates affect your weekly shortfall. Rates depend on your deposit size and lender, so a calculator helps with your own numbers.

Mistake 3: Believing Interest-Only Lifts Your Borrowing Power

Interest-only repayments do not increase how much you can borrow. Lenders assess an interest-only loan on principal and interest repayments over the remaining term after the interest-only period ends.

A 30-year loan with a 5-year interest-only period is assessed over the remaining 25 years. That produces a lower maximum loan size than the same loan on principal and interest. Interest-only keeps the balance flat, which lowers repayments in the short term. The trade-off is that you are not reducing the debt, and when the loan reverts to principal and interest, repayments rise because they are spread over a shorter period.

Only the interest is deductible under either structure. The principal part of a principal and interest repayment is not deductible, because it repays the loan itself. An interest-only loan does not by itself produce a larger deduction.

Mistake 4: Mixing Personal Spending With Investment Debt

Interest is only deductible on borrowed money used for the investment. If you draw equity from an investment loan or redraw funds for a holiday, car or renovation of your own home, the interest on that portion is private and not deductible.

The ATO looks at how each drawdown is used, not what the loan was originally for. Borrowing against equity does not make the interest deductible. The use of the funds does. A redraw is treated as a separate borrowing, so mixed-purpose accounts become messy at tax time.

An offset account lowers the interest charged, so the interest incurred, which is the basis for a deduction, is lower too. It does not reduce the loan balance. Keep personal funds and investment borrowing in separate loan splits where you can, and ask your accountant how to treat each one. If you already hold an investment loan with mixed uses, refinancing into a cleaner structure may be worth discussing.

Does Negative Gearing Still Make Sense for a Chadstone Investor?

It can, if the property suits your cash flow and your longer-term goals, and not only the tax treatment. Chadstone is a south-east Melbourne suburb best known for Chadstone Shopping Centre, and some investors use equity in their existing home.

If you are using equity in your home to buy an investment property, the lender will usually want to see both loans within its policy. Borrowing above 80% of the property value generally requires Lenders Mortgage Insurance, which adds a cost payable by you. Our home loans and investment specialists can look at both sides together.

The new capital gains tax settings also matter. For gains accruing before 1 July 2027, the 50% discount continues to apply for assets held longer than 12 months. After that date, gains accruing are taxed using cost base indexation and a 30% minimum tax rate, with some exceptions. Speak to your accountant about how this affects your sell-or-hold plans.

You can read more about our local team on our Chadstone mortgage broker page. Call one of our team or book an appointment at a time that works for you, and we will work through your numbers and your timing with you.

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