Australia’s proposed negative gearing changes for 2026 have brought property tax planning back into sharp focus for investors. These changes will affect how rental losses are claimed, which residential investment properties receive the strongest tax breaks, and how investors compare new builds with established properties.
From 1 July 2027, the federal government plans to limit negative gearing for residential property to new builds only. Existing arrangements are expected to remain unchanged for properties held before Budget night, while investors who buy eligible new builds should still be able to deduct rental losses from other income, helping reduce tax paid.
This does not mean negative gearing is being abolished. Instead, the reform aims to focus tax support on new housing supply by directing more investor demand towards new residential properties that increase new housing supply.
For everyday investors, the biggest issue is cash flow. If rental losses can no longer reduce salary or business income immediately, some investors may need to carry forward unused losses and use them against future residential property income or capital gains. This will change how investors assess holding costs, borrowing capacity, depreciation deductions, and long-term returns.
What Are the Negative Gearing Changes 2026?
The negative gearing changes are proposed reforms that limit how some residential property investors can claim rental losses against other income.
Under current tax settings, investors can generally offset a rental property loss against salary, wages, or other taxable income. A rental loss happens when deductible costs of owning the property, such as loan interest, council rates, property management fees, repairs, insurance, depreciation deductions, and other costs, exceed rental income.
Under the proposed new arrangements, the strongest negative gearing tax discount will apply to new residential builds from 1 July 2027. Investors with eligible new builds may still be able to deduct losses against other income and reduce tax paid.
For some established residential investment properties, the rules will change. Instead of claiming a rental loss against salary or business income in the same year, investors may have to carry those losses forward. They can then deduct losses against future residential property income or capital gains arising when they eventually sell.
For property investors, the type of property, contract date, and expected rental result may matter more than before.
| Current negative gearing treatment | Proposed treatment for affected properties |
|---|---|
| Rental losses can generally reduce other taxable income | Rental losses may be quarantined and carried forward |
| Investors may receive an immediate tax benefit | Tax benefit may be delayed |
| Applies broadly to eligible investment properties | More favourable treatment focused on new builds |
| Can support annual cash flow | May require longer-term tax planning |
When Will the Negative Gearing Changes Start?
The proposed negative gearing changes are expected to start from 1 July 2027.
The key time is Budget night on 12 May 2026 at 7:30 pm AEST. Based on the Federal Government’s Budget announcement, properties held before this time are expected to keep their existing negative gearing tax treatment. This is often called grandfathering.
For investors who buy an established residential investment property after Budget night, the transition period matters. These investors may still receive the current negative gearing treatment until 30 June 2027, but the new rules may apply from 1 July 2027.
The timing may affect buying decisions, cash flow forecasts, and tax planning. Investors should remember the changes may still depend on final legislation, so details could change before they become law.
| Date | What it means for investors |
|---|---|
| 12 May 2026, 7:30 pm AEST | Key Budget announcement time for grandfathering |
| 30 June 2027 | Final day before the proposed new treatment starts |
| 1 July 2027 | Proposed start date for the new negative gearing rules |
Which Properties May Be Affected?
The negative gearing changes mainly focus on residential investment properties. The proposed rules do not treat every property the same way.
New Residential Builds
New residential builds are expected to receive the most favourable tax treatment.
From 1 July 2027, investors who buy eligible new residential properties may still be able to negatively gear the property. This means they may continue to deduct rental losses against other taxable income, such as salary or business income, to reduce tax paid.
New builds may include newly constructed apartments, townhouses, duplexes, or house and land packages, depending on the final legislation. Properties with substantial renovations may also qualify.
Established Residential Investment Properties
Established residential investment properties may face different treatment if bought after the key budget announcement time.
An established property is generally one that has already been lived in, sold before, or used as a residential dwelling. Under the proposed changes, rental losses from some established properties may no longer offset unrelated income from 1 July 2027.
Instead, investors may need to carry those losses forward and use them against future residential property income or a capital gain arising from the eventual sale of the property.
Properties Held Before Budget Night
Properties already held before 12 May 2026 at 7:30 pm AEST are expected to keep their existing treatment.
The final definitions will matter. Investors should confirm whether a property qualifies as a new build before relying on the expected tax treatment.
| Property type | Likely treatment under proposed rules |
|---|---|
| New residential build | May retain negative gearing treatment |
| Established property bought after Budget night | May face restricted loss treatment from 1 July 2027 |
| Property held before Budget night | Expected to keep the current treatment |
| Commercial property | Not the main focus of the proposed residential property changes |
What Happens to Rental Losses Under the Proposed Rules?
Rental losses are central to the negative gearing changes in 2026.
For example, an investor may earn $28,000 in rent but have $36,000 in deductible expenses. This creates an $8,000 rental loss.
Under current tax settings, many investors can use that loss to reduce other taxable income, such as wages or business income. This creates an immediate tax benefit and improves annual cash flow.
Under the proposed rules, rental losses from affected established residential properties may be quarantined from 1 July 2027. This means losses may be carried forward and used later against residential rental income or capital gains arising from residential properties.
This could affect investors who rely on tax refunds to support loan repayments, holding costs, or future property purchases.
Depreciation deductions remain important. A tax depreciation schedule helps identify eligible capital works deductions and plant and equipment depreciation. These deductions may increase rental losses, affecting carried-forward amounts and future tax planning.
| Example item | Current treatment | Proposed treatment for affected properties |
|---|---|---|
| Rental income | Included in taxable income | Included in taxable income |
| Deductible rental expenses | Claimed against rental income | Claimed against rental income |
| Net rental loss | May reduce salary or other income | May be carried forward |
| Timing of tax benefit | Often immediate | Usually delayed |
| Cash flow effect | Can reduce the annual tax payable | May increase holding pressure |
Will Existing Investment Properties Be Grandfathered?
Existing investment properties are expected to be grandfathered under the proposed negative gearing changes.
Grandfathering means properties held before the key budget announcement may continue under the existing rules, even after the new rules start.
If an investor owned a residential investment property before 12 May 2026 at 7:30 pm AEST, the current negative gearing treatment is expected to continue. Eligible rental losses may still reduce other taxable income, such as salary, wages, or business income, helping reduce tax paid.
This matters because many investors structured their finances based on current tax settings.
However, investors should not assume every situation is simple. Grandfathering may depend on final legislation, ownership structure, acquisition timing, and later changes to the property or ownership.
Investors may need advice if they transfer ownership, buy through discretionary trusts, companies or SMSFs, convert a primary residence into a rental, complete substantial renovations, redevelop, or sell and buy again.
Good records help. Investors should keep purchase contracts, settlement statements, loan records, rental statements, repair invoices, renovation costs, depreciation schedules, and sale documents.
How Do the Changes Affect New Builds?
The negative gearing changes may make new builds more attractive for property investment.
If a new build qualifies under final rules, investors may still be able to deduct rental losses against other taxable income after 1 July 2027. This helps cash flow, especially early on when loan interest, holding costs, and depreciation deductions are higher.
New builds may also offer stronger tax depreciation benefits. Investors can claim capital works deductions for building structure and eligible plant and equipment depreciation for new assets, such as ovens, carpets, blinds, air conditioning units, and hot water systems.
However, tax breaks should not drive the whole decision. Investors must still consider purchase price, expected rent, vacancy risk, body corporate fees, location demand, build quality, builder reputation, and long-term resale appeal.
A new build with weak tenant demand or limited growth may underperform. A well-located new residential property with strong rental demand may be more attractive if it retains full negative gearing access under the proposed rules.
How Do the CGT Changes Connect to Negative Gearing?
The negative gearing changes are part of a wider reform package that includes capital gains tax (CGT) changes.
Currently, many investors access the 50 per cent capital gains tax discount if they hold an investment property for more than 12 months. This means only half of the capital gain is included in taxable income.
The proposed reform will replace the 50 per cent CGT discount with cost base indexation from 1 July 2027. Indexation adjusts the asset’s cost base for inflation. Instead of a flat 50 per cent discount, investors reduce the capital gain by inflation before paying tax.
The federal government will also introduce a minimum 30 per cent tax on net capital gains. Investors in new builds can choose either the 50 per cent CGT discount or the new indexation and minimum tax treatment when they eventually sell.
These CGT reforms connect with negative gearing because rental losses carried forward may be deducted against a future residential property capital gain.
This makes record-keeping crucial. Investors should keep documents showing purchase price, stamp duty, legal fees, selling costs, capital improvements, depreciation deductions, renovation costs, rental losses, and ownership dates.
Why Depreciation Schedules Still Matter
Tax depreciation remains important under the negative gearing changes of 2026 because it affects rental losses, taxable income, and future tax planning.
A tax depreciation schedule outlines deductions an investor can claim for wear and tear on an income-producing property.
Currently, depreciation deductions can increase a rental loss, which reduces other taxable income if the property is negatively geared.
Under the proposed rules, depreciation deductions will still increase carried-forward losses. These may be used against future residential property income or capital gains.
A depreciation schedule also provides clearer records of construction costs, eligible assets, and claimable deductions. This will be valuable if rental loss and capital gains tax rules become more complex after 1 July 2027.
What Should Property Investors Review Before 1 July 2027?
The proposed negative gearing changes give investors time to review their position before the new rules start.
Investors should not base decisions on tax treatment alone. A property still needs to make sense as an investment. However, the changes will affect cash flow, deductions, carried-forward losses, and future capital gains tax outcomes.
Investors with rental properties should ensure their records are complete and up to date. This includes contracts, settlement statements, loan records, rental statements, repair invoices, renovation costs, depreciation schedules, and sale documents.
Investors planning to buy should carefully compare new builds and established properties. A new build may offer stronger tax breaks, but price, location, rental demand, vacancy risk, and long-term growth remain key factors.
| What to review | Why it matters |
|---|---|
| Property purchase date | Confirms whether the property falls under existing or proposed tax rules |
| Property type | New builds and established properties may have different tax treatment |
| Rental income | Shows whether the property produces a rental profit or loss |
| Loan interest | Often, one of the largest deductible holding costs |
| Depreciation schedule | Identifies capital works deductions and plant and equipment depreciation |
| Renovation records | May affect deductions, cost base, and future capital gains tax calculations |
| Ownership structure | Trusts, discretionary trusts, companies, SMSFs, and joint ownership need advice. |
| Carried-forward losses | Affect future residential property income or capital gains |
| CGT cost base records | Support future capital gains tax calculations |
| Tax advice | Helps avoid relying on general information only |
FAQs About Negative Gearing Changes 2026
Is negative gearing being abolished?
No. The proposed negative gearing changes of 2026 do not remove negative gearing completely. Instead, the federal government aims to focus tax support on new residential builds from 1 July 2027.
Will the changes affect existing investment properties?
Existing investment properties held before 12 May 2026 at 7:30 pm AEST are expected to keep their current treatment. Many existing investors may still offset eligible rental losses against other taxable income.
What happens if I buy an established investment property after Budget night?
An established residential investment property bought after Budget night may be affected from 1 July 2027. Instead of using rental losses against other income, investors may need to carry those losses forward.
Can investors still claim rental losses?
Yes, but the timing may change. Under the proposed rules, some rental losses may be quarantined and carried forward rather than claimed immediately against unrelated income.
Do the changes apply to new builds?
New residential builds are expected to keep more favourable negative gearing treatment. Investors who buy eligible new builds may still offset rental losses against other income after 1 July 2027.
How do the CGT changes relate to negative gearing?
The capital gains tax reforms will replace the 50 per cent CGT discount with cost base indexation and introduce a 30 per cent minimum tax on net capital gains. Carried-forward rental losses may later interact with residential property capital gains.
Do I still need a depreciation schedule?
Yes. A depreciation schedule helps investors claim eligible deductions, supports carried-forward loss calculations, and keeps accurate records for future tax planning.
Should investors buy a new build because of the changes?
Not automatically. New builds may receive stronger tax treatment, but investors still need to consider purchase price, rental demand, location, vacancy risk, build quality, depreciation deductions, and long-term capital growth.
The Rules May Change, But Records Matter
The proposed negative gearing changes of 2026 will change how property investors compare new builds, established properties, and long-term tax outcomes. From 1 July 2027, the strongest negative gearing benefits are expected to focus on new residential builds, while some established investment properties may face delayed rental loss deductions.
For investors, the key issue is when a deduction can be used. If rental losses are carried forward instead of claimed against salary or business income each year, cash flow planning becomes more important.
The proposed capital gains tax reforms also make good records more valuable. Purchase dates, ownership details, renovation costs, depreciation deductions, carried-forward losses, and cost base records all affect future tax calculations.
A tax depreciation schedule helps investors understand claimable deductions and provides clearer figures for their accountant at tax time. This will be useful before the new rules begin or when comparing new builds with established residential properties.
The rules still depend on final legislation, so investors should avoid making major decisions based on headlines alone. The best approach is to review the numbers, keep accurate records, and seek advice before buying, selling, or restructuring an investment property.
