Negative Gearing Changes: How You Could Still Negatively Gear a Rental Property

For most of 2026, investors were told the rules were about to change. They have. The negative gearing changes announced on Budget night received Royal Assent on 26 June 2026. What applies from 1 July 2027 is now law, not a proposal.

Here is what the headlines miss. Negative gearing has not been abolished. The law draws a line based on when you bought and what you bought, and plenty of investors sit on the right side of it.

A rental property can still be a strong long-term investment. The key is the type of property you buy.

What are negative gearing changes?

From 1 July 2027, if you buy an established residential property after 7:30 pm AEST on 12 May 2026, you can no longer offset rental losses against your wage or salary. Those losses are quarantined instead. They carry forward and can only be used against future residential rental income or a capital gain on the sale of a rental property.

Two groups are unaffected. Anyone who owned, or was under contract for, a residential investment property before that moment keeps the old rules. Newly built homes are exempt, so negative gearing against other income still works on a new build. 

It is the question we field most often, and the answer usually comes down to a date and a property type. If you are weighing up a purchase, we at Osinski Finance in Rockingham can run the numbers with you, and our investment lending page covers how we approach investment loans.

What is negative gearing?

Negative gearing occurs when the costs of holding a rental property exceed the rent it earns each year.

Those costs usually include:

• Agent and property management fees
• Repairs, maintenance and insurance
• Council rates and strata levies
• Mortgage interest
• Depreciation on the building and its fittings

When the costs exceed the rent, the shortfall is a loss. Under decades-old rules, the loss is deducted from the investor's total annual income, including wages, reducing their tax bill.

Investors usually accept this annual loss because they expect the profit on sale, known as capital gains, to outweigh it. That trade-off is what changes for one category of purchase.

The key dates you need to know

• 12 May 2026, 7:30 pm AEST. The grandfathering cut-off. Properties owned or under contract before this moment keep the existing treatment.
• 26 June 2026. The legislation received Royal Assent and became law.
• 30 June 2027. The end of the transition window. Established properties bought after Budget Night can still be negatively geared against other income until this date.
• 1 July 2027. The new negative gearing rules start, along with the capital gains tax changes.

That exact time matters. The acquisition date here is generally the contract date, not settlement. Exchange at 6 pm on Budget Night, settle three months later, and you should still be grandfathered. Confirm your position with your accountant, because a lot rests on that timestamp.

The new negative gearing rules explained

If you bought before Budget Night

Nothing changes. You have a grandfathered investment property and can keep negatively gearing it for as long as you hold it.

One point trips people up. Grandfathering depends on when you acquired the property, not on whether it currently runs at a loss. A property that is positively geared today is still grandfathered, so if rates or vacancies push it into the red later, the old treatment applies.

If you buy an established property from here

Losses stay deductible against other income until 30 June 2027. From 1 July 2027, they can only be offset against other income from residential properties or against capital gains arising from the sale of a rental property, rather than against your wage or salary. They carry forward until there is something to offset.

That is manageable if you hold several properties, because there is other rental income to absorb the losses. The catch is that most Australian investors only own one rental property. For them, rental loss quarantining defers the benefit rather than removing it, which changes the cash flow picture in the early years.

If you buy a newly built property

You are exempt. Negative gearing against your other income still applies.

One caveat. The government is still finalising the regulatory definition of "new", so the boundaries of the new build exemption are not settled. If a purchase depends on qualifying, confirm the property meets the definition before you commit.

How you could still negatively gear a property

Buy a newly built property

This is the most direct route, and it is deliberate policy rather than a loophole. Australia faces a well publicised housing shortage, and as our population continues to grow, more people compete for somewhere to live. By preserving negative gearing for new builds, the government is hoping to boost the supply of housing. 

Keep your current home when you upgrade

This is the option we see overlooked most often, and it is worth thinking about early.

If you bought your current home before 7:30 pm on 12 May 2026, it sits on the grandfathered side of the line even though it is your home today. Upgrade or downsize later, keep the original, and it could become a negatively geared investment under the old rules.

That decision has a lending side as well as a tax side. Holding the first property means carrying two loans, and lenders assess your capacity for the new home with both the existing debt and the expected rent in the calculation. 

Model it before you commit. Our guide on using your home's equity to buy an investment property covers how the structure usually works. Speak to your accountant about the tax treatment, and to us about whether the lending stacks up.

What is happening with capital gains tax?

The two reforms travel together.

From 1 July 2027, the 50% capital gains tax discount for individuals, trusts and partnerships is replaced by cost base indexation plus a 30% minimum effective tax rate on the taxable portion of the gain. 

Investors use indexation to adjust gains for inflation, and that is also the method used to determine capital gains tax on established properties. New residential dwellings and affordable housing can elect to keep the 50% discount instead, which is a second advantage stacking on top of the negative gearing carve-out above.

There is also a transition reset. Every capital gains tax asset is treated as sold and immediately reacquired at market value on 1 July 2027. Gains built up before that date keep the old discount. Only the gain accruing afterwards falls under the new method. The ATO's guidance on the reforms sets out the detail.

Your own home is not affected. The main residence exemption is untouched.

What happens if you inherit or separate?

The original drafting created a problem reported as the "widow tax". Someone who inherited their partner's share of a jointly owned investment property was treated as acquiring it after the cut-off, losing the grandfathering the couple had held together.

Draft legislation released for consultation in August 2026 lets the treatment follow the inheritance instead, so a surviving spouse keeps the original treatment. The same provision is proposed for property transferred through divorce or separation.

This is still draft legislation and the detail may shift. If it affects you, raise it with your accountant now rather than waiting.

Is this as bad for investors as it sounds?

Most commentary has treated the negative gearing changes as a straight loss for investors. The research is more mixed.

Analysis by the e61 Institute of 920,000 housing investments from 2008 to 2025, reported by ABC News in September 2026, found roughly 53% of housing investors would pay more tax under the combined changes, 43% would pay less, and the rest were broadly unaffected. The researchers described the impact as softer than the commentary suggested. Highly leveraged investors and retirees on little other taxable income face the largest increases.

Both arguments have weight. Supporters say less investor competition for established homes helps first home buyers. Critics say fewer investors pressure rental supply in markets already short of stock. Which way it lands depends on your own position far more than the national picture, which is why it is worth modelling. Investor behaviour is already shifting, as we covered in our post on investors buying interstate.

Other reasons a newly built property can stack up

Speak with your accountant about anything tax-related, because the right answer depends on your circumstances. That said, negative gearing is only one part of a new build's appeal.

Investors who buy a newly built property can choose to claim a 50% capital gains tax discount on the sale of the property if they hold onto it for more than 12 months. Electing that rather than being locked into indexation can make a meaningful difference on a property held long term.

There is another upside, and that is the potential to claim increased depreciation costs, both on the building and on fittings such as carpets, curtains and appliances. On a new build, those deductions are available in full, whereas second-hand assets in an established property are far more limited.

Which category are you in?

• You owned an investment property before 7:30 pm on 12 May 2026. Grandfathered. Nothing changes.
• You bought an established property after Budget night. Deductible until 30 June 2027, quarantined after that.
• You are buying an established property from 2027. Losses are quarantined from day one and carried forward.
• You are buying a newly built property. Negative gearing still applies, and you have a choice of capital gains tax method on sale.
• You bought your home before the cut-off and are thinking of upgrading. Keep it, and it may become a grandfathered investment property.

Where this leaves your property plans 

The rules have changed, and the uncertainty is over, but negative gearing has not disappeared. What matters is the property type and which side of 12 May 2026 it sits on. For many people, that is better news than the headlines suggested.

Financial experts generally agree that investment decisions shouldn't be based on potential tax benefits alone, and that holds here. Residential property has been a successful long-term investment for many Australians, and despite occasional dips, property prices have risen over time. Tax is one input, not the reason to buy.

Talk to your accountant about your tax position, then talk to Osinski Finance about the lending. Whether you are investing in a property, becoming a first home buyer or refinancing your home loan, we will show you what you can borrow and what the repayments realistically look like. Contact us to get started.

Key Takeaways

• The negative gearing and capital gains tax reforms are law. Royal Assent was 26 June 2026, and the new rules start 1 July 2027.
• The cut-off is 7:30 pm AEST on 12 May 2026, based on the contract date rather than settlement.
• Properties owned or under contract before that moment are grandfathered, whether or not they currently run at a loss.
• Established properties bought after the cut-off have rental losses quarantined from 1 July 2027 and carried forward against future rental income or a residential capital gain.
• Newly built properties remain exempt, though the definition of "new" is still being finalised.
• The 50% capital gains tax discount is replaced by indexation plus a 30% minimum rate, and the main residence exemption is unchanged.

Frequently Asked Questions

When do the negative gearing changes actually start?

The new rules apply from 1 July 2027. The legislation became law on 26 June 2026, and the cut-off that decides who is affected was earlier again, at 7:30 pm AEST on 12 May 2026. There is a long runway before anything changes in practice, but the date that determines your treatment has already passed. 

What is negative gearing in simple terms?

It is when the cost of holding a rental property is higher than the rent it brings in over a year. Those costs include mortgage interest, management fees, maintenance, insurance, rates and depreciation. The shortfall is a loss, and under current rules it can be claimed against your other income, including wages, which reduces your tax bill. 

Has negative gearing been abolished in Australia?

No. It has been restricted, not removed. Negative gearing against wage or salary income continues for newly built properties, and for any residential property owned or under contract before Budget night on 12 May 2026. What changes is the treatment of established properties acquired after that point. 

Does this affect the home I live in?

No. The changes apply to residential investment property. The main residence capital gains tax exemption is unchanged, so selling the home you live in is treated as it always has been. If a property has been used for both private and investment purposes, discuss it with your accountant. 

I signed a contract before 12 May 2026 but settled later. Am I grandfathered?

The acquisition date here is generally the contract date rather than settlement, so exchanging before 7:30 pm AEST on 12 May 2026 should mean you are covered. Because so much rests on the timing, confirm your position with your accountant rather than assuming. Keep your contract documentation somewhere you can find it. 

My investment property is not negatively geared right now. Does it still count as grandfathered?

Yes. Grandfathering is based on when you acquired the property, not on whether you are currently claiming a loss. A property that is positively geared today keeps the existing treatment, so if it moves into a loss later through a rate rise or a vacancy, the old rules still apply. 

What counts as a "newly built" property?

The exemption targets dwellings that add to housing supply, but the precise regulatory definition is still being finalised. Until it lands, treat it as an open question on any specific purchase. If your plans depend on a property qualifying, confirm it does before you commit. 

What happens to my rental losses if I buy an established property after the cut-off?

From 1 July 2027, those losses are quarantined. They cannot offset wage or salary income. Instead, they carry forward and can be used against future residential rental income, or against a capital gain when you sell a rental property. The deduction is not lost; it is deferred until there is something to offset. 

Will I pay more capital gains tax under the new rules?

It depends on the asset and how long you hold it. The 50% discount is replaced by cost base indexation plus a 30% minimum rate; gains accrued before 1 July 2027 keep the old discount, and new residential dwellings can elect to keep the 50% discount. An accountant can model your position, which is the only reliable answer. 

What happens if I inherit a negatively geared property from my partner?

Draft legislation released in August 2026 proposes that the negative gearing treatment follows the inheritance, so a surviving spouse keeps the original treatment rather than being treated as a new purchaser. The same provision is proposed for divorce and separation settlements. This is not yet final, so keep an eye on it if it affects you. 

Does any of this change my borrowing capacity?

Quarantined losses change the after-tax cash flow on an established investment property, which affects how a purchase stacks up on paper and how comfortable the repayments feel early on. Lenders assess capacity on the actual numbers, so model the change before you make an offer. We can walk through what it looks like for your situation. 

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