Negative Gearing Changes 2026: New Builds Only From 1 July 2027

For years, negative gearing reform was the loudest "what if" in Australian property. On Budget night, 12 May 2026, the "what if" became policy. The Government will restrict negative gearing to new builds, and rental losses on established residential properties bought after Budget night will no longer be deductible against your salary.

This guide breaks down exactly what was announced, the all-important acquisition date that determines whether your property is affected, the dollar impact on a typical investor, and what to do now.

What Is Negative Gearing and What Has Changed?

Negative gearing lets a property investor deduct the net loss from an investment property (where expenses exceed rental income) against their other taxable income, including salary. It has been one of the most valuable concessions in the Australian tax system. ATO data shows negative gearing cost the federal budget roughly $10.9 billion in 2023-24.

The 2026 Budget keeps negative gearing for new builds but removes it for established residential property bought from Budget night onward. For a primer on how the deduction works mechanically, see our guide on negative gearing explained with a worked example.

Exactly What the 2026 Budget Announced

The key features of the announced policy:

• New builds are exempt. Investors who buy eligible newly constructed dwellings can still deduct rental losses against their other income, as now. The policy is designed to channel investor capital toward new supply.
• Established residential property is restricted. From 1 July 2027, net rental losses on affected established dwellings can only be deducted against rental income or capital gains from residential property, not against salary or other income. Excess losses can be carried forward.
• The trigger is the acquisition (contract) date. The new rules apply to established residential property acquired from 7:30pm AEST on 12 May 2026. Contracts entered before that moment are unaffected and retain current rules until you sell, regardless of settlement date.
• Residential only. Commercial property, shares, and other asset classes are unaffected and continue under existing rules.
• Further carve-outs. Widely held trusts, superannuation funds, build-to-rent developments, and private investors in government housing programs are also excluded from the restriction.

In short: if you already owned (or had a contract on) an established investment property before Budget night, nothing changes for you. If you buy an established rental after Budget night, you lose the ability to offset its losses against your wages from 1 July 2027.

Grandfathering: Who Is Protected?

The reform is not retrospective. Grandfathering is built around the contract date:

• Properties with contracts entered before 7:30pm AEST on 12 May 2026 retain the current negative gearing rules for the life of the holding, until disposal.
• Settlement timing does not matter for grandfathering; the contract date is what counts.
• New builds of any date keep full deductibility against other income.
• Depreciation (Division 40 and 43) is a separate regime and is unchanged.

This contract-date trigger means there is no rush-to-settle dynamic. What matters is whether you had signed a contract before Budget night.

Worked Example: A $700k Sydney Unit Bought After Budget Night

To quantify the impact, consider an investor earning $130,000 per year who buys a $700,000 established Sydney unit after 12 May 2026, with an $18,000 annual rental loss.

At the 37% marginal rate, losing the ability to offset an $18,000 loss against salary costs roughly $6,660 per year in forgone refund, lifting the after-tax holding cost from $11,340 to $18,000. The carried-forward losses are not lost entirely; they can offset future residential rental income or capital gains, but the immediate cash-flow benefit against wages disappears.

Over a 10-year hold, that difference compounds to roughly $66,600 in additional out-of-pocket cost for an affected established property, before any flow-through effect on prices or rents.

Strategic Actions Now

Confirm the status of every property you own. Anything you held or had under contract before 7:30pm AEST on 12 May 2026 is grandfathered. There is no need to sell to protect that treatment.

Re-run the numbers on any new established purchase. If you are buying an established rental after Budget night, model it with rental losses quarantined from 1 July 2027. If the property only works because losses offset your salary, it is structurally fragile. Use our cashflow forecasting guide to model a no-salary-offset scenario.

Weigh up new builds. Eligible new builds keep full deductibility against other income, which now makes them relatively more attractive for negatively geared strategies. Balance that against the usual new-build considerations (price premium, depreciation profile, and resale liquidity). See off the plan property for the trade-offs.

Tilt toward positive cash flow. Regional markets, dual occupancy, and high-yield suburbs become more attractive when losses on established stock can no longer offset wages. See our positive cash flow property guide.

Keep claiming depreciation. Division 40 and 43 deductions are unchanged. A quantity surveyor schedule remains one of the highest-ROI tax strategies available.

How This Interacts With the CGT Overhaul

Negative gearing was not the only concession the budget changed. The same budget replaced the 50% CGT discount with cost-base indexation and a 30% minimum tax from 1 July 2027. Investors who relied on the negative gearing deduction during the hold and the 50% discount on exit now face tighter treatment at both ends.

For the detail on the CGT side, read our guide on the 2026 CGT discount changes.

What It Means for Property Prices and Rents

Independent modelling of restricting negative gearing to new builds has generally pointed to a modest downward effect on established dwelling prices, partly offset by stronger demand for new builds, and some upward pressure on rents where investor participation in the established market falls. The grandfathering of existing holdings limits forced-sale dynamics, so any price effect is expected to be gradual rather than a shock.

The net effect on any individual property depends heavily on location, yield profile, whether it is new or established, and the purchaser mix in that suburb. Well-located properties in supply-constrained markets are expected to remain resilient.

Bottom Line

Negative gearing has not been abolished, but the rules have fundamentally changed for established residential property bought after 12 May 2026. From 1 July 2027 those rental losses are quarantined to residential rental income and capital gains rather than offset against salary. New builds keep full deductibility, and everything held before Budget night is grandfathered.

The strongest defence is to buy properties that stand on their own merits: strong location fundamentals, acceptable yield, and resilient cash flow. Tax concessions should be a bonus, not the foundation of your investment thesis.

If you are actively researching your next investment, explore PropBuyAI's pricing plans to see how AI-driven analysis can help you identify properties that remain profitable under the new rules.

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• Negative Gearing Explained Australia 2026
• CGT Discount Changes 2026 Australia
• Capital Gains Tax on Investment Property Australia
• Positive Cash Flow Property Australia
• Property Investment Tax Deductions Australia