Negative Gearing Changes 2026: What Every Property Investor Needs to Know

The federal budget handed down on 12 May 2026 contained the most significant change to negative gearing since the rules were last touched in the late 1980s. From 1 July 2027, negative gearing for residential investment property will be limited to new builds only, but only for properties purchased after 7:30pm AEST on budget night. Everything else is grandfathered.

This article unpacks exactly what's changing, the timing rules that matter, who is and isn't affected, and what investors should actually do with the information.

Negative gearing in plain English

Negative gearing happens when the costs of owning an investment property, interest, council rates, insurance, repairs, depreciation, are higher than the rental income. The "loss" can currently be deducted against your salary and other income, reducing the total tax you pay. For high-income earners on the 37% or 45% marginal rate, the tax saving from negative gearing has historically been substantial.

Approximately 1.1 million Australians currently negatively gear an investment property, claiming roughly $11 billion in net rental losses annually against their other income. The system has been a structural feature of Australian property investment for nearly four decades.

What's actually changing on 1 July 2027

From 1 July 2027, residential investment property losses will only be deductible against other property income, not against salary, business or other income, for properties purchased after the cut-off time. Losses can be carried forward indefinitely to be used against future property profits or against the capital gain when the property is sold.

Two key carve-outs:

• New builds are exempt. If the property is a new home (newly constructed, never previously occupied for residential purposes) at the time you buy it, it retains full negative gearing eligibility under the old rules
• Existing properties are grandfathered. Any residential investment property you owned on 12 May 2026 keeps the old negative gearing treatment, regardless of when it was bought

The 7:30pm cut-off, why it matters

The precise cut-off is 7:30pm AEST on Tuesday 12 May 2026, the moment the Treasurer began his budget speech. Contract date is what counts. If you signed a contract to purchase an established residential investment property before that moment, you're grandfathered. If you signed after, you're under the new rules.

Settlement date doesn't change this. A property you contracted to buy on 10 May 2026 but only settled on 1 June 2026 is grandfathered. A property you contracted to buy at 8pm on 12 May 2026 falls under the new rules even if you'd been negotiating for weeks beforehand. Speak to your conveyancer if you have any contract straddling the date.

Who is affected and who isn't

Not affected

• Anyone who owned a residential investment property on 12 May 2026, your existing properties keep their existing treatment for life
• Investors in commercial property, industrial property, retail property, the change is for residential only
• Owner-occupiers, your principal place of residence has nothing to do with negative gearing
• Investors who only buy new builds going forward, full negative gearing remains available

Affected

• Investors who purchase established residential property after the cut-off date, losses no longer offset salary income
• Investors who contract for property settlements before but buy further established properties after, the new properties only fall under the new rules
• SMSF investors purchasing new residential property within their fund, same rules apply

What "new build" actually means

For the purposes of the exemption, a "new build" is a residential dwelling that has not previously been sold as a residential premises and has not been previously occupied for residential purposes. In practical terms this captures:

• Off-the-plan apartments purchased before completion
• House and land packages where the home is newly constructed
• Newly built spec homes from a builder that have not been lived in
• Substantially renovated homes meeting the ATO's "substantial renovation" definition (rarely simple to qualify)

It does not include a 6-month-old house someone has lived in, or a property that was previously rented as a residence and is being on-sold. The definition is essentially the same one the ATO already uses for GST on new residential property, so accountants and developers are familiar with it.

The investment implications

The shift in incentives is significant. For new investors entering the market after budget night, the relative attractiveness of property segments changes:

Existing established property, the after-tax case weakens

The classic negatively-geared 1990s townhouse or 1980s unit, purchased to generate a modest yield with capital growth and tax savings, becomes less attractive on an after-tax basis. The same gross cashflow position produces a worse net result because rental losses no longer reduce your salary tax. Many established residential investments shift from negatively geared to neutrally or positively geared (with no benefit beyond the cash return) under the new rules.

New builds, the after-tax case strengthens (relatively)

A new house and land package, off-the-plan apartment, or newly-built townhouse keeps full negative gearing eligibility. With investor demand redirecting toward new supply, the new-build segment becomes structurally more attractive. The combination of full negative gearing, full CGT discount (new homes are exempt from those changes too), and depreciation makes the after-tax case for new builds materially better than established for most investor profiles.

Cashflow-positive established property, the same as before, or slightly better

Investors targeting yield rather than capital growth, typically in regional Australia, outer suburbs, or specialised stock like NDIS housing or rooming houses, see no material change. The properties were positively geared anyway, so the negative gearing rules were never doing the heavy lifting in their returns.

What about existing investors who buy more property later?

Critical point: the grandfathering applies to specific properties, not to specific investors. If you own three rentals on 12 May 2026, those three are grandfathered for life. If you buy a fourth established property in 2027, the new property is under the new rules. Losses on property #4 cannot be deducted against your salary.

But losses on property #4 can be deducted against rental income from properties #1, #2 and #3 (subject to general loss-quarantining rules). The new regime requires rental losses to flow within the property silo, not into salary income. For portfolio investors with multiple properties, this softens but does not eliminate the impact.

Should you sell to lock in the old rules?

This is the question every accountant is being asked. The answer in almost every case: no, do not sell to "lock in" the grandfathering. The reasoning:

• Grandfathering applies to the property as long as you own it, you don't need to do anything to preserve it
• Selling generates a capital gains tax event right now, which crystallises tax you may have deferred indefinitely
• Transaction costs of selling and buying again are usually 5 to 8% of property value (agent fees, marketing, stamp duty on the new purchase, conveyancing, etc.), far more than the marginal annual benefit
• Once you sell, you can't buy back into the same property treatment

There may be specific situations, significant portfolio rebalancing, retirement planning, family transfers, where selling makes sense for non-tax reasons. The new rules don't change those calculations meaningfully.

Should you buy now (before 7:30pm 12 May 2026 has long passed)?

The cut-off has already passed for contracts dated 13 May 2026 onward. Anyone reading this is now under the new rules for any new established residential purchase. The question becomes: given the new regime, does the investment still make sense?

For many investors, the answer is still yes, but the analysis is different:

• Run the numbers without negative gearing. Assume zero salary deduction benefit. Does the property still meet your return target on cashflow + capital growth alone?
• Consider yield-focused locations. Brisbane, Perth, Adelaide and regional markets with 4%+ gross yields work better in the new regime than 2% inner-Sydney yields
• Look harder at new builds. The tax wrapper is more favourable, and developers know investor capital is flowing toward them, be careful on pricing
• Talk to a mortgage-broker" class="glossary-link" data-glossary-slug="mortgage-broker">mortgage broker about lending impacts. Without negative gearing, serviceability buffers may calculate differently

What the changes don't touch

Several things remain unchanged that investors often expect would be touched by negative gearing reform:

• Depreciation rules: division 40 (plant and equipment) and division 43 (building) depreciation remain available as before
• Interest deductibility itself: interest on investment property loans is still fully deductible against rental income. The change is only about what happens with the leftover loss
• Loss carry-forward: losses you can't use against salary are not lost. They carry forward indefinitely to be used against future rental income or, ultimately, against the capital gain when you sell
• Trust and company structures: these were never subject to "personal" negative gearing anyway. Investment property held in a unit trust or company has always been on a different regime

The political reality

This is a clear break of a pre-election commitment, and the government has been honest about that. The framing is that the housing affordability problem has worsened enough that the original commitment was no longer tenable. Whatever your view on the politics, the policy is now law from budget night and the timing rules are locked. Future political changes, including potential repeal or further modification under a different government, are possible but speculative. Plan for the rules as they are now.

Practical next steps for current investors

1. Don't panic-sell. Your existing properties are protected. The grandfathering is permanent for as long as you hold the property
2. Update your records. Confirm with your accountant that each property's purchase date and contract date are documented clearly, this matters if there's ever a question about which regime applies
3. Review your strategy for future purchases. The new regime favours yield over loss-driven returns, and new builds over established. Adjust accordingly
4. Talk to your accountant before the 2026-27 financial year close. There may be ways to bring forward maintenance, repairs or depreciation reviews to maximise current-year deductions while the old rules still apply to all property types
5. Use our negative gearing calculator with and without the new rules to see how the change affects your specific portfolio

The negative gearing changes are real, structural, and significant, but they don't break the case for property investment in Australia. They reshape it. Investors who think carefully about location, yield, supply incentives and tax positioning under the new regime can still build sustainable property portfolios. The strategy needs to be sharper than it was, but the opportunity remains.

Cover photo: sv1ambo, CC BY 2.0, via Wikimedia Commons.