Negative Gearing Gets Deeper After the March 2026 Rate Hike — Is That Good or Bad?

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

The RBA’s second consecutive rate hike on 17 March 2026 — bringing the cash rate to 4.10% — has pushed investment loan rates to their highest level since late 2024. For property investors, this means larger interest deductions but also deeper negative gearing losses and tighter cash flow.

This article breaks down what that means in dollar terms and when deeper negative gearing actually helps versus hurts.

How much bigger are the deductions?

For an investment property with a $500,000 variable-rate loan, the 50 basis point increase since January 2026 adds approximately $2,500 per year in interest costs.

At different marginal tax rates, the deduction offsets part of that cost:

Marginal rate	Extra annual interest	Tax saving from deduction	Net out-of-pocket increase
30%	$2,500	$750	$1,750
37%	$2,500	$925	$1,575
45%	$2,500	$1,125	$1,375

Higher-income investors recover more through deductions, but nobody comes out ahead — the tax saving is always less than the extra cost. A dollar of deduction is worth at most 45 cents back.

The cash flow squeeze is real

Deeper negative gearing means your property is costing you more each month after rent is collected. For many investors, the monthly shortfall matters more than the annual tax benefit.

Consider a property with $2,500/month rent and a $500,000 loan:

Rate scenario	Monthly interest	Monthly shortfall (after rent)	Annual loss
3.35% (Jan 2026)	$1,396	~$400	~$4,800
3.85% (Feb 2026)	$1,604	~$600	~$7,200
4.10% (Mar 2026)	$1,708	~$700	~$8,400

That’s a 75% increase in monthly out-of-pocket from January to March. The tax refund arrives once a year in your assessment — but the cash flow drain is every month.

When deeper negative gearing is defensible

Negative gearing makes economic sense when the property’s total return (rental yield plus capital growth) exceeds the after-tax holding cost. The tax deduction just reduces the hurdle rate.

It tends to work when:

• You have strong capital growth expectations (>5% p.a.) that justify the holding cost
• Your marginal rate is high (37%+), maximising the deduction value
• You can comfortably absorb the cash flow shortfall without drawing on emergency reserves
• The property has a clear path to becoming positively geared through rent increases

It becomes questionable when:

• Capital growth has stalled or reversed in your market
• The shortfall is straining your household budget
• You’re relying on the tax refund to fund other living expenses
• You have higher-returning, lower-risk alternatives available (e.g. term deposits now paying 4.5–5.0%)

Rent increases can offset — but slowly

National rents grew 4.8% in the year to February 2026 (CoreLogic). At that pace, a property renting at $2,500/month would see roughly $120/month in additional rent over the next year — covering only a fraction of the $300/month interest increase from the two hikes.

In tight rental markets (vacancy <1%), landlords may be able to push rents harder. In softer markets, the gap widens and the investor absorbs more of the cost.

Tax return impact: what to claim

If you’re negatively geared, ensure you’re claiming all eligible deductions to maximise the offset:

• Loan interest — the largest deduction for most investors. Must relate to the income-producing property, not private portions of the loan
• Property management fees — typically 5–10% of gross rent
• Council rates, water, strata, insurance — all deductible in the year paid
• Depreciation — building write-off (Division 43) and plant & equipment (Division 40). For post-May 2017 properties, only building depreciation applies to second-hand assets
• Repairs and maintenance — deductible in the year incurred (not capital improvements)

See Rental Property Interest Deductions for detailed guidance on interest apportionment.

Should you sell?

If the holding cost has become unsustainable, the question becomes: is selling now the better outcome after tax?

Key considerations:

• CGT discount: If you’ve held for 12+ months, you only pay tax on 50% of the capital gain
• Cost base: All non-deducted capital costs (stamp duty, legal fees, capital improvements) reduce the taxable gain
• Timing: Selling before 30 June means the gain falls in the current tax year. Selling after defers it to next year — useful if you expect lower income
• Losses: If you sell at a loss, the capital loss can only offset capital gains, not other income

Use the CGT Calculator to model the after-tax outcome of selling at today’s value, and compare with the hold vs sell scenario.

Key takeaways

• The March 2026 rate hike deepens negative gearing losses — more deductions but worse cash flow
• A $500,000 investment loan now costs ~$2,500/year more than in January 2026
• The tax saving covers at most 45% of the extra cost — you’re still worse off in cash terms
• Rent growth is not keeping pace with interest rate increases for most properties
• Review your total return assumptions: if capital growth doesn’t justify the holding cost, consider alternatives
• Ensure all eligible deductions are claimed, particularly depreciation and interest apportionment

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Model your property’s after-tax position

Use the Investment Property Calculator to see how the rate hike affects your annual cash flow and tax refund, or check whether negative gearing is worth it for your specific property.