You have probably heard about negative gearing quite a bit recently, and that's because the popular tax policy will likely be reformed for the first time in almost 40 years in next week's federal budget.
The all-but-confirmed changes have sparked quite a debate and divided opinions across the political spectrum and the private sector.
Here is why it's important (in simple terms, of course).
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Negative gearing is when an investor has expenses associated with a property, like interest on mortgage repayments, that are greater than the profit it makes.
Investors are then able to deduct many of those expenses from their taxable income, meaning they pay less during tax time.
Negative gearing became more popular when the Howard government introduced the 50 per cent capital gains tax discount in 1999.
Coupled together, the generous concessions made it more attractive for investors to hold a property in the hopes that it increases value in the long-term and leads to a greater profit when they sell.
The findings from the Greens-led Senate inquiry in March outlined what some critics have been saying about negative gearing and the similarly popular capital gains tax discount: the policies are flawed and benefit investors over first-home buyers.
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Supporters of the policies, like the Housing Industry Association, believe any changes to the two property tax benefits could worsen the rental crisis by discouraging investment in housing.
Treasurer Jim Chalmers is poised to reform negative gearing and the capital gains tax discount when he delivers his federal budget on May 12.
He has not officially confirmed the policies will be included, but has not ruled them out either.
While we don't know for sure how negative gearing will be changed, there have been reports it may be wound back entirely, only applied to investors with more than one property, or phased out with exemptions for new properties.
The government is hoping to use changes in the budget to address intergenerational inequity.
The anticipated reforms are a big deal, particularly since negative gearing has remained largely untouched since the Hawke/Keating governments temporarily limited it and then reversed the decision in 1987.
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Prime Minister Anthony Albanese may also break a key promise by introducing changes after repeatedly telling reporters during last year's election campaign that he would not make any changes to negative gearing.
In one instance, he responded to a question about ruling out any changes with: "Yes. How hard is it? For the 50th time".
His government is, however, making the argument that changes are needed to address housing affordability and help young people enter the market.
"There are genuine intergenerational concerns and pressures in our budget, in our tax system, in our housing market and in our economy more broadly," Chalmers said on Monday.
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