Top tips to understand negative gearing in Raceview

Negative gearing means your rental property costs more to hold each year than it earns in rent, and you can claim that loss against your other income when you do your tax return.

For properties you already own or are buying right now in Raceview, nothing has changed. Your rental losses still reduce your taxable income from your job or business. That treatment continues until you sell. For investors buying established homes after May this year, the rules are different. Losses on those properties can only be claimed against income from other residential properties. If you are buying a brand new home or unit, the old rules still apply no matter when you buy.

How negative gearing worked before the change

Until May, every dollar of loss on a rental property could be claimed against every dollar of income you earned, whether from wages, a business, or another investment. If your Raceview rental lost you $8,000 in a financial year after you added up the interest, rates, insurance and repairs and subtracted the rent, that $8,000 reduced your taxable income. At a marginal tax rate of 32.5 per cent, that saved roughly $2,600 in tax.

The strategy appealed to people in steady jobs with income they could not otherwise shelter. In Raceview, where rental stock includes a mix of older fibro and brick homes alongside newer estates near Redbank Plaza, investors were often buying established three-bedroom homes within reach of the Ipswich line. Properties in streets near the railway attracted tenants working in Brisbane, and vacancy periods were typically short.

What changed in May and when it takes effect

From 7:30pm on 12 May, the government announced that losses on newly purchased established residential property would no longer be deductible against wage or business income. Instead, those losses can only offset income from other residential rental properties, including capital gains when you sell. The change does not take effect until the income year starting 1 July next year, so any property you buy between now and then still qualifies for the full deduction until 30 June next year.

If you already own an investment property in Raceview or anywhere else, or if you exchanged contracts before 7:30pm on 12 May, your property is grandfathered. You continue claiming losses against all income until you sell. Properties classified as new builds are also exempt, no matter when you buy them. That includes homes built on vacant land and developments where the number of dwellings increased, such as a duplex replacing a single house. A knock-down rebuild that leaves the dwelling count the same does not qualify.

Why new builds are treated differently

The exemption for new builds is designed to keep investment flowing into housing supply. A three-bedroom new build in one of the developing pockets near Raceview State School, purchased as an investment after May, still allows the buyer to claim rental losses against their salary. An established 1980s brick home two streets away, bought at the same time, does not.

Consider an investor buying a newly built duplex in Raceview. They rent out both halves. Interest, council rates, water, insurance and property management fees total $32,000 for the year. Combined rent from both tenants is $28,000. The $4,000 loss can be claimed in full against the investor's income from their job. If they had bought an established duplex instead, that same $4,000 loss could only be used to reduce tax on income from other rental properties they own, or carried forward to offset a future capital gain on a residential property.

What it means for buyers in Raceview right now

Raceview sits within the Ipswich council area and remains one of the more accessible entry points for Brisbane-based investors. Median prices for houses have historically sat below the broader Ipswich median, and the area benefits from rail access and proximity to Redbank Plaza and the Ipswich CBD. Buyers considering an established rental property in Raceview before 30 June next year can still use negative gearing under the old rules for the current financial year, but from 1 July onward, the new rules apply.

An investor borrowing to buy an established home in Raceview after May will need to consider whether they have other residential property income to absorb the loss, or whether they are prepared to carry the loss forward. If the property is neutrally geared or positively geared from the outset, the rule change has no immediate impact. Many investors in this part of Ipswich have historically targeted capital growth rather than yield, accepting a modest annual loss in exchange for price appreciation over a five to ten year hold. Under the new framework, that loss no longer delivers a tax refund unless the investor owns multiple properties or realises a capital gain.

How interest-only loans interact with the change

Interest-only loans remain available for investment properties and are commonly used to maximise the deductible interest expense in the early years of ownership. On an investment loan, an interest-only period typically runs for one to five years, after which the loan reverts to principal and interest unless you renegotiate.

Under the old negative gearing rules, an interest-only structure increased the size of the annual loss because none of the repayment went toward reducing the principal. That larger loss translated to a larger tax deduction. Under the new rules, the size of the loss still matters, but only if you have residential property income to offset it against. If you do not, the loss is banked and carried forward. The interest-only strategy does not disappear, but the immediate tax benefit is more limited for investors who only own one newly purchased established property.

Carried-forward losses and how they work

If your Raceview rental property makes a loss and you cannot use that loss in the current year because you have no other residential property income, the loss does not vanish. It is carried forward and can be claimed in a future year against residential property income, including rent from another property or a capital gain when you sell.

In a scenario where an investor buys an established Raceview home in the next financial year and holds it for eight years, accumulating $40,000 in total losses over that period, those losses reduce the taxable capital gain when the property is sold. If the property was bought for $400,000 and sold for $550,000, the nominal gain is $150,000. After applying the carried-forward losses, the taxable gain before any discount is $110,000. From 1 July next year, gains on residential property are also subject to a new tax treatment involving cost base indexation and a minimum 30 per cent rate on real gains, but that is a separate change and applies to the portion of any gain that accrues after that date.

Refinancing and equity release for existing investors

Investors who already own property in Raceview and are considering expanding your property portfolio may look at releasing equity from their current home to fund a deposit on a second property. If the existing Raceview property was owned before the cut-off, it remains grandfathered. A new property purchased with released equity will be subject to the new rules if it is an established dwelling.

Releasing equity does not change the tax treatment of the original loan. Interest on borrowings used to buy or hold the Raceview investment remains deductible under the original rules. Interest on any new borrowing is deductible to the extent that borrowing is used to acquire or hold an income-producing asset. If you release $80,000 in equity and use it as a deposit on a new rental property, the interest on that $80,000 is deductible, but under the new negative gearing rules, any loss on the new property can only offset residential property income.

Stamp duty, LMI and other upfront costs

Stamp duty on an investment property purchase in Queensland is calculated on the full purchase price and is not deductible as a one-off expense. It forms part of the cost base for capital gains tax purposes when you sell. Lenders Mortgage Insurance, if applicable, is also not immediately deductible but can be claimed over five years or the term of the loan, whichever is shorter.

For a property purchase in Raceview at a price near the current area median, stamp duty and associated transfer costs can add several thousand dollars to the upfront amount required at settlement. Those costs do not generate a deduction in the year of purchase, but they do reduce the taxable gain when you eventually sell. LMI, which applies when you borrow more than 80 per cent of the property value, is a one-off premium that protects the lender, not the borrower. It remains deductible over time, and that deduction is subject to the same negative gearing rules as mortgage interest.

Calculating whether a property will be negatively geared

Before you buy, you can estimate whether a Raceview rental will produce a loss or a surplus. Start with the expected annual rent. Subtract loan interest, council rates, water charges, insurance, property management fees, repairs and depreciation. If the result is negative, the property is negatively geared. If it is positive, you have a taxable surplus.

Rental yields in Raceview typically sit between 4.5 and 5.5 per cent depending on property type and condition. A home renting for $400 per week produces $20,800 in annual rent. Interest on an 80 per cent loan at a current variable investment rate will usually exceed $20,000 per year. Once you add rates, insurance and management, the property will likely run at a loss. Whether that loss benefits you under the new rules depends on whether you have other residential property income and whether the property qualifies as a new build.

Call one of our team or book an appointment at a time that works for you. We work with investors across Raceview and greater Ipswich and can walk you through loan structures, serviceability, and how the updated tax treatment affects your specific situation.

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