Negative Gearing Changes 2026: What Property Investors Need to Know

From 1 July 2027, Australia's negative gearing rules change for established residential investment properties acquired after 7:30pm AEST 12 May 2026. Rental losses on those properties can no longer be deducted against your salary or other income — they are quarantined and carried forward against future rental income or property capital gains. Properties owned on 12 May 2026 are grandfathered. New builds remain eligible for full negative gearing.

This guide explains what changed in the 2026-27 Federal Budget, who is affected, how the new quarantining rule actually works in dollar terms, and how to think about negatively geared investment property under the new regime.

The 5-second summary

• Old rules: net rental loss reduces your taxable income — you get back the loss × your marginal tax rate as a refund.
• New rules (from 1 Jul 2027): net rental loss is locked away. No salary offset. Loss carries forward to offset future rental income or property capital gains.
• Grandfathering cut-off: 7:30pm AEST 12 May 2026 (budget night).
• Pre-12 May 2026 acquisitions: grandfathered — full negative gearing continues for the life of the property.
• Post-12 May 2026 established residential: losses quarantined from 1 Jul 2027.
• Post-12 May 2026 new builds: full negative gearing retained — the policy carve-out for new supply.
• Commercial property: unaffected.
• CGT 50% discount: also being replaced from 1 July 2027 — see the CGT discount changes article.

What's actually changing on 1 July 2027

Currently, if your investment property runs at a loss — typically because interest and other deductions exceed rental income — you can deduct that net loss against your salary, business income, or other assessable income. The Australian Taxation Office refunds you the loss × your marginal tax rate. For a $10,000 loss at the 37% marginal rate, that's a $3,700 refund. This is "negative gearing."

The 2026-27 Federal Budget restricts that offset for two categories of acquisition:

Established residential property acquired after 7:30pm AEST 12 May 2026. From 1 July 2027, net rental losses are quarantined — they cannot reduce your salary tax. The losses are still recognised by the ATO, but they're locked into a rental-property bucket and carried forward indefinitely. You can apply them against:

• Future rental income from any of your investment properties
• Capital gains realised on residential investment property

Until you have one of those to offset, the deduction sits unused.

New builds acquired after 12 May 2026 keep full negative gearing — the Government's stated rationale is that the system should reward investors who add new housing supply rather than those who buy existing dwellings off other investors. This carve-out applies indefinitely.

The grandfathering line is precise: contracts signed at 7:30pm AEST 12 May 2026 or earlier are exempt. The cut-off is the moment of the Treasurer's Budget speech (anti-forestalling) — standard practice in major Australian tax reform.

Who's affected, who's grandfathered

Acquisition scenario	Negative gearing treatment
Property owned at 7:30pm 12 May 2026	Unchanged — full salary offset continues for life of asset
Established residential, contracted before 7:30pm 12 May 2026	Grandfathered — full negative gearing
Established residential, contracted after 7:30pm 12 May 2026	Losses quarantined from 1 July 2027
New build, any acquisition date	Full negative gearing retained
Commercial property	Unchanged — full negative gearing
Build-to-rent development	Excluded from quarantining
Properties supporting government housing programs	Excluded

The grandfathering is permanent and tied to the asset, not the owner. If you sell a grandfathered property and rebuy a different established one in 2028, the new one falls under the quarantined rules.

A worked example: $10,860 net rental loss

Take a typical investor scenario:

• Taxable salary: $100,000 (37% marginal bracket)
• Investment loan: $500,000 at 5.5% — annual interest $27,500
• Weekly rent: $500 with 80% utilisation — annual rent $20,800
• Other deductions (management, insurance, repairs, depreciation): ~$4,160 (20% of rental)
• Total deductions: $31,660
• Net rental loss: $31,660 − $20,800 = $10,860

Under the current rules (grandfathered or new build)

The $10,860 loss reduces taxable income from $100,000 to $89,140. Tax saving:

• Tax on $100,000: $20,788
• Tax on $89,140: $17,530
• Tax benefit this year: $3,258

The loss has produced an immediate $3,258 refund.

Under the new rules (post-12 May 2026 established residential, from 1 Jul 2027)

The loss cannot offset salary. Tax on the $100,000 salary remains $20,788. The $10,860 loss is recognised but quarantined:

• Tax benefit this year: $0
• Loss carried forward: $10,860

The $10,860 carries forward to offset future rental profit or property capital gains. If you sell the property in five years and realise a $200,000 capital gain, you can apply the accumulated quarantined losses (say $50,000 by then) against that gain — reducing the taxable capital gain to $150,000.

The deduction isn't destroyed. But the timing shifts dramatically: instead of $3,258 back this year, the same value lands when the property is eventually profitable or sold. For a portfolio held 10-15 years, that's a meaningful cashflow drag.

Should you keep your negatively geared portfolio?

For grandfathered properties (owned on or before 12 May 2026), nothing changes — the analysis is the same as it always was: net cashflow, capital growth expectations, and the tax shield from negative gearing.

For new acquisitions of established property, the calculation shifts:

1. The pre-tax cashflow gap is no longer cushioned by the salary refund. A $10,000 cash loss is now a $10,000 cash loss — not a $6,300 net-of-tax loss after the 37% refund. Servicing becomes harder.

2. The deduction is deferred, not eliminated. If you'll eventually have rental income to offset (positive gearing later, additional properties, etc.) or you'll sell the property at a gain, the loss eventually gets used. So the present value of the deduction is reduced — by however much you discount future cashflows.

3. The 30% minimum CGT tax floor (also from 1 July 2027) interacts with point 2. For investors below the 30% bracket, the quarantined loss is worth more on the eventual sale than it would have been against salary (because the CGT-event tax rate is now 30% rather than their marginal rate). For investors above 30%, it's the same or worse.

Three rules of thumb for post-12 May acquisitions:

• Cashflow stress test at zero negative gearing. Can you service the loan if losses don't offset salary? If not, the property may not be sustainable.
• Prioritise new builds. The negative gearing + CGT carve-outs combine to make new-build investment materially better-treated than established property post-1 July 2027.
• Model the timing. A deduction in 2027 is worth more than the same deduction in 2034. Discount future tax benefits accordingly.

The new build workaround

The clearest path to retain negative gearing on a new acquisition is a new build. The Government's policy intent is to direct investor capital toward additions to housing supply, so the negative gearing benefit (and the CGT discount choice) are preserved for newly-constructed dwellings.

"New build" is broader than just brand-new turn-key apartments. It includes:

• Newly-constructed houses, townhouses and apartments
• Off-the-plan purchases that complete after 12 May 2026
• Substantially renovated properties (where renovation triggers the "new" status under existing GST rules)
• Properties built on land that previously held a different structure

A house-and-land package contracted in mid-2026 and completed in 2027 retains full negative gearing for life. An identical-on-paper investment in an established 1990s townhouse next door does not. The tax wedge is now baked into the asset class — brokers and accountants will need to model this when comparing options for new clients.

What about the CGT changes?

The same Budget also replaces the 50% CGT discount with cost base indexation + a 30% minimum tax floor from 1 July 2027. Same grandfathering cut-off, same opt-in for new builds. The two changes interact — quarantined rental losses can offset capital gains from residential property, partially recovering the deferred deduction.

For the full analysis on CGT, see CGT Discount Changes 2026: Should You Sell Your Investment Property Before 1 July 2027? and the Budget 2026 CGT Calculator which runs both regimes side-by-side.

Try the negative gearing calculator

Our negative gearing calculator now supports the Budget 2026 quarantining rules. Switch the regime selector to "Compare both side-by-side" to see the cashflow impact under current vs new rules for your specific property — and what carries forward when losses are quarantined.

What happens next

The Budget 2026 negative gearing changes still need to pass legislation. Expected timeline:

• May–November 2026: Treasury exposure drafts and consultation
• Late 2026: Bill introduced to Parliament
• First half 2027: Royal assent (subject to Senate support)
• 1 July 2027: New negative gearing rules commence

There is political risk — the changes are contested. But the 12 May 2026 grandfathering date is fixed in the announcement, which means it's already operative for behavioural purposes. Any established residential property contracted after 7:30pm 12 May 2026 is at risk of quarantining regardless of when legislation passes.

We will update this article and the calculator as draft legislation is released.

Frequently asked questions

Is negative gearing being abolished in Australia? Not entirely. Negative gearing remains available indefinitely for properties owned at 7:30pm AEST on 12 May 2026, and for new builds acquired after that date. From 1 July 2027, established residential properties acquired after 12 May 2026 have their rental losses quarantined — losses cannot offset salary or other non-rental income, but can be carried forward against future rental income or property capital gains.

Will my existing negatively geared property be affected? No. Investment properties you owned at 7:30pm AEST on 12 May 2026 are grandfathered. Full negative gearing continues for the life of the asset — losses freely offset your salary at your marginal tax rate. The new quarantining rules only apply to acquisitions after that announcement-night cut-off.

When do the new negative gearing rules start? The rules apply from 1 July 2027 to established residential properties acquired after 7:30pm AEST 12 May 2026. Between 12 May 2026 and 30 June 2027, normal negative gearing continues for everyone — the legislation hasn't yet commenced.

Can I still negatively gear a new build? Yes — and that's the point of the carve-out. New builds acquired after 12 May 2026 retain full negative gearing indefinitely. Build-to-rent developments and properties supporting government housing programs are also excluded from the quarantining rules.

What does loss quarantining mean in practice? Under the new rules, if your rental property runs at a loss, you cannot reduce your salary tax with that loss. The loss is locked into a rental-property bucket and carries forward indefinitely. You can use it later to offset rental profit from any property, or to offset capital gains when you sell. The deduction is deferred, not destroyed.

Does the negative gearing change apply to commercial property? No. The Budget 2026 quarantining rules apply only to residential investment property. Commercial property — offices, warehouses, retail, industrial — continues to allow full negative gearing of losses against other income.

How do the negative gearing and CGT changes interact? They reinforce each other for post-12 May 2026 established property acquisitions. The same property loses both the immediate salary offset (from 1 July 2027) and the 50% CGT discount on sale. Quarantined rental losses can offset capital gains from residential property on sale — partially recovering the deduction at exit, but only against rental property gains.

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This article provides general information current at 14 May 2026 and does not constitute personal tax, legal or financial advice. The measures discussed are announced government policy and may change before legislation is passed. Seek advice from a qualified accountant or financial adviser before making decisions about your investment property.