Negative gearing changes 2026: How the new tax rules impact property investors
Negative gearing has long been a core strategy for Australian property investors. For decades, investors bought residential properties where holding expenses exceeded rental income, using that net loss to reduce their salary tax while waiting for long-term capital growth.
However, major tax reforms passed by the Federal Government mark a fundamental shift in how residential real estate tax concessions operate in Australia. The goal of these legislative updates is to redirect tax support away from existing housing stock and toward expanding the net housing supply.
For Australian property investors, these changes alter both annual holding cash flows and bank borrowing capacities. Navigating this updated financial landscape requires a clear understanding of the tax rules, the key dates, and the strategic pivots now available to investors.
Key takeaways
- Negative gearing occurs when an investment property's deductible expenses are higher than its rental income.
- Traditionally, investors could use eligible rental losses to reduce taxable income from salary or wages.
- From 1 July 2027, traditional negative gearing will be limited to eligible new residential builds.
- Established properties acquired after 7:30 pm AEST on this date will be affected by the new negative gearing rules.
- New builds, higher-yield properties, commercial property and different ownership structures may become more important considerations for future investors.
What is negative gearing?
Negative gearing occurs when the eligible costs of owning an investment property are higher than the income the property generates.
Property costs can include:
- Interest on the investment property loan
- Council rates and water charges
- Property management fees
- Building insurance and strata fees
- Eligible repairs and maintenance
- Eligible depreciation and capital works deductions
When eligible expenses exceed rental income, the property produces a net rental loss.
Under the traditional rules, an individual investor can generally claim an eligible rental loss against other assessable income, such as salary or wages, reducing their taxable income.
Negative gearing cash flow example
To understand how negative gearing works in practice, consider an investor earning a regular salary who owns a residential rental property.
| Financial scenario | |
|---|---|
| Annual salary | $120,000 |
| Annual rental income | $25,000 |
| Annual property expenses | $35,000 |
| Net rental loss | $10,000 |
Tax impact under traditional rules: If the $10,000 rental loss is fully deductible against the investor's other assessable income:
- Salary income: $120,000
- Eligible rental loss: $10,000
- Taxable income after the rental loss: $110,000
If the investor's relevant marginal tax rate were 30%, a $10,000 deduction would reduce income tax by approximately $3,000 before considering factors such as the Medicare levy or other tax circumstances. The investor still experiences the property's cash shortfall, but the tax deduction can reduce part of its overall after-tax cost.
The numbers above are just one scenario. Your own tax saving will depend on your income, loan size, and expenses — our negative gearing calculator can help you model it.
Timeline of negative gearing changes 2026: Key dates every property investor must know
The 2026 tax reforms follow a strict timeline. Investors must understand three critical dates to know how their portfolio is affected.
New vs. established properties under the negative gearing rules 2026
Under the updated framework, not all residential real estate is treated equally for tax purposes. The key to navigating the 2026 negative gearing rules comes down to whether a property adds new housing capacity to the market or simply transfers existing ownership. Here is how each category is defined.
What is an established property?
An established property is generally an existing residential property that does not qualify as an eligible new build.
Examples include:
- An existing house, apartment or townhouse
- An established home that has been renovated or extended
- One old house demolished and replaced with a new house
- A new property occupied for more than 12 months before being sold to another investor
The important point is that making a property newer does not necessarily make it an eligible new build. If the work does not add to the housing supply, it may not qualify.
What is an eligible new build?
An eligible new build is a newly constructed residential property that genuinely adds to the housing supply.
Examples include:
- A new apartment bought off-the-plan
- A new home built on previously vacant land
- One existing house replaced with a duplex
- A new property occupied for less than 12 months before its first sale
For example, replacing one house with another house does not add housing supply, but replacing one house with a duplex does.
What are the negative gearing rules 2026?
The Federal Government's tax reforms fundamentally change how tax losses are handled on established residential real estate. Below is a breakdown of how the new rules apply based on purchase dates and property types:
- Grandfathered existing properties: Properties purchased or contracted prior to 7:30pm AEST on 12 May 2026 retain full access to existing negative gearing rules. Net rental losses can continue to be deducted directly from personal salary and wage income until the property is sold.
- Exemption for new builds: Investors buying eligible new builds (such as greenfield developments or off-the-plan builds that increase housing supply) retain full negative gearing privileges against salary and wage income.
- Loss quarantining on established properties: For established residential properties bought after 7:30pm AEST on 12 May 2026, negative gearing against salary and wage income is abolished starting 1 July 2027. Rental losses can no longer reduce wage income. Instead, they are quarantined and carried forward to offset future residential rental income or capital gains upon sale.
Negative gearing changes 2026 example
Consider Liam, an individual investor with the following property and income details:
- Salary income: $120,000 per year
- Property purchase: Established two-bedroom townhouse
- Purchase date: 18 August 2026
- Gross rental income: $25,000 for 2027–28
- Deductible expenses: $37,000, including loan interest, rates, and maintenance
- Net rental loss: $12,000
Because Liam purchased the established property after the 12 May 2026 cutoff, he cannot deduct the $12,000 rental loss against his $120,000 salary. His taxable wage income therefore remains $120,000, and the $12,000 loss is quarantined and carried forward.
In a future year:
- Net rental surplus: $4,000
- Carried-forward loss used: $4,000
- Taxable rental income: $0
- Remaining carried-forward loss: $8,000
When Liam eventually sells the townhouse, any remaining quarantined losses may be applied against the capital gain, subject to the applicable rules.
Exemptions from the negative gearing rule
The restrictions do not apply in the same way to every investment or entity.
Key exclusions and exceptions include:
- Superannuation funds: Super funds, including SMSFs, are excluded from the new loss-quarantining rules.
- Widely held trusts: Widely held trusts, including most managed investment trusts, are excluded.
- Commercial property: The negative gearing reforms apply to residential property, so commercial property remains under existing arrangements.
- Government housing programs: Further exemptions are intended for private investors supporting eligible government housing programs, including certain affordable housing arrangements.
The rules otherwise apply to individuals, partnerships, companies and most trusts.
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Cash costs vs. non-cash deductions under negative gearing rules 2026
Property expenses can affect both your day-to-day cash flow and your tax position. Some costs require you to pay money during the year, while other eligible property costs may be claimed as deductions over time.
Out-of-pocket property expenses
These are costs you may pay while owning and renting an investment property. Depending on your circumstances, eligible expenses can include:
- Interest on the investment property loan
- Council rates and water charges
- Strata fees
- Property management fees
- Insurance
- Eligible repairs and maintenance
Not every property expense can be claimed immediately. Some costs, such as improvements and other capital expenses, may need to be claimed over several years.
Non-cash deductions and depreciation
Some property-related costs may be claimed as deductions over several years rather than being deducted in full in the year the cost is incurred.
These may include:
- Capital works deductions (Division 43): Eligible construction costs for buildings and certain structural improvements may be claimed over time.
- Decline in value of depreciating assets (Division 40): Deductions may be available for eligible depreciating assets used in a rental property.
However, depreciation rules depend on the property and the asset. Restrictions can apply to deductions for certain second-hand depreciating assets in residential rental properties.
What changes under the new negative gearing rules?
The new rules do not stop investors from claiming eligible property expenses and depreciation deductions. However, if these deductions result in a rental loss on an affected property, there are new limits on how that loss can be used for tax purposes.
For more details on how these losses are treated, see the earlier section "What are the negative gearing rules 2026?" in this blog post.
Wondering how much tax you will pay on your property sale?
Use our Capital Gains Tax Calculator to estimate your return.
How could loss quarantining affect borrowing capacity?
The new negative gearing rules may affect borrowing capacity for some investors, particularly where a lender considers negative gearing tax benefits when assessing an investment loan.
Australian lenders do not all treat negative gearing benefits in the same way. APRA has previously raised concerns about lenders relying on anticipated future negative gearing tax benefits to get borrowers over the line, while current APRA guidance requires lenders to take a prudent approach to income and serviceability.
For an affected established property, if a lender's serviceability model recognises an eligible negative gearing tax benefit, the change in the investor's tax treatment could potentially affect that calculation.
What else do lenders consider when assessing borrowing capacity?
Loss quarantining is only one part of the assessment. Lenders may also consider:
- Salary and other income
- Expected rental income
- Existing home loans and other debts
- Credit card limits and personal loans
- Living expenses
- Proposed loan repayments
- Their own credit and serviceability policies
APRA currently requires APRA-regulated lenders to apply a serviceability buffer of at least 3 percentage points above the borrower's loan interest rate. APRA's guidance also says prudent serviceability policies incorporate a minimum 20% haircut to expected rental income.
This means loss quarantining does not automatically reduce borrowing capacity. The outcome depends on the investor's financial position and the lender's policy.
Actionable ways to boost your borrowing capacity
If you are considering another property purchase, several steps may help strengthen your serviceability position before applying:
- Reduce existing debts: Pay down existing personal debts (such as credit cards or personal loans) to improve overall serviceability ratios.
- Review credit card limits: Lenders can assess revolving debt based on the available limit rather than simply the amount currently owing.
- Consider rental income: Stronger rental income may support serviceability, although lenders generally apply a discount when assessing it.
- Compare lender policies: Treatment of income, expenses and serviceability can differ between lenders.
- Review your finances before applying: Check your income, expenses, debts and commitments before deciding on your property budget.
APRA's guidance specifically requires lenders to consider existing secured and unsecured debts and provides for prudent treatment of revolving credit and rental income.
These steps may strengthen your overall financial position, but they do not guarantee a higher borrowing limit or loan approval.
Calculate your investment property borrowing limit
Get a clear picture of your maximum loan amount using our quick Borrowing Power Calculator.
Negative gearing rules 2026 for different property ownership structures
How you own an investment property can affect how rental losses are treated. The rules can differ depending on whether the property is held in your personal name, a family trust, a company or an SMSF.
Personal ownership vs. Discretionary family trusts
Buying in your personal name allows you to offset quarantined losses against future capital gains or rental income from other properties you hold individually.
If you buy an established property through a Discretionary Family Trust after May 2026, tax losses cannot be passed through to beneficiaries. Losses remain trapped inside the trust. They can only offset future income generated within that specific trust entity.
Company structures and negative gearing rules
Holding residential property in a corporate structure (company) means losses are contained at the company tax rate (25 percent or 30 percent). Companies do not receive individual tax concessions, so using a company structure solely to manage negative gearing losses on established housing is rarely optimal for everyday retail investors.
Why do Self-Managed Super Fund (SMSF) rules stand out?
SMSFs offer distinct tax advantages, as income inside super is taxed at a concessional rate of 15 percent, and capital gains held over 12 months are taxed at 10 percent. However, borrowing rules inside superannuation have tightened significantly.
Under legislation taking effect on 10 August 2026, SMSFs can no longer enter into new Limited Recourse Borrowing Arrangements (LRBAs) to purchase residential property. An SMSF can still buy residential real estate if the fund pays full cash without taking out a loan.
Alternatively, SMSFs can still use LRBA loans to acquire commercial real estate or business premises. Existing residential LRBAs established before the August 2026 cutoff remain grandfathered.
Want the full picture? Read our detailed blog post on the new SMSF borrowing rules.
Where to invest now: Top property strategies under new negative gearing rules
The reforms do not make one type of property automatically better than another. Investors still need to consider cash flow, rental demand, growth potential, financing costs, tax treatment and their individual investment objectives.
Options worth assessing can include:
- Brand-new homes and off-the-plan property: New builds are completely exempt from the new rules. If you earn a high salary, you can still claim tax deductions on a new house-and-land package or off-the-plan apartment. Just keep in mind that older homes in popular suburbs often grow faster in value over time. Also, watch out for extra building costs like site upgrades, which can add $20,000 to $60,000 to the build price.
- High-yield and cash-positive properties: Properties that earn more in rent than they cost to hold do not need tax refunds to make sense. Investors are looking at regional towns, rooming houses, and co-living properties. These options pay for themselves from day one and protect you if interest rates go up.
- Dual-income homes and granny flats: Adding a granny flat or second dwelling to a property lets you collect two rents from one piece of land. This boosts your weekly income and lowers your out-of-pocket costs. Plus, building a new granny flat lets you claim extra tax write-offs for the construction.
- Commercial property: Offices, shops, and warehouses are not affected by residential tax changes. Commercial real estate often brings in higher rental returns (5% to 8%+), features longer leases, and usually requires tenants to pay for bills like council rates and insurance.
- Self-Managed Super Funds (SMSF): Buying property inside a super fund is still a smart tax move. Super funds operate under separate rules, so they are not affected by personal tax limits. Income inside a super fund is taxed at a lower rate (15%), and long-term capital gains are taxed at just 10%.
- Smarter rentvesting: Rentvesting in Australia means renting where you want to live and buying an investment property somewhere affordable. Instead of buying low-rent city apartments, rentvestors are now buying high-yield regional houses or new buildings so they do not have to cover big weekly shortfalls out of their own pocket.
- Combining property and shares: To balance their money, many investors are combining property with Australian shares and ETFs. Shares pay cash dividends that come with tax credits, giving you instant income while your property grows in value over the long run.
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How could negative gearing changes affect the housing market?
The negative gearing changes are designed to shift more property investment towards new housing while reducing the tax benefits available for certain established investment properties.
What could happen to house prices?
The Treasury expects the changes to reduce some investor demand for established properties. As a result, house prices are still expected to grow, but at a slightly slower rate.
Treasury estimates that house price growth could be around 2% lower over a couple of years than it would have been without the tax changes. This does not mean the Treasury expects house prices to fall by 2%.
Will the negative gearing changes increase rents?
The Treasury expects the impact on rents to be relatively small.
Will the changes encourage more new housing?
The reforms are designed to encourage investors to buy properties that add new homes to the market. Investors can continue to negatively gear eligible new builds, including qualifying homes built on vacant land and developments where one existing property is replaced with a greater number of homes.
In short, the Government expects the reforms to reduce some investor demand for established homes, encourage more investment in new housing, slightly slow house price growth and have only a small impact on rents.
How can ZedPlus help?
At ZedPlus, we can help you understand your finance options before you make your next property decision.
- Review your borrowing capacity: We assess your income, debts, expenses and expected rental income to understand your borrowing position.
- Compare lender policies: Different lenders assess investment income, expenses and serviceability differently. We can compare suitable options across our lender panel.
- Review your loan structure: We can review your existing debts and lending structure to identify finance options that may better suit your circumstances.
- Finance new or established properties: Whether you are considering an eligible new build or an established investment property, we can help you explore suitable investment loan options.
- SMSF and commercial property finance: We can also help eligible investors understand available lending options for SMSF and commercial property purchases.
For tax treatment, ownership structures and the application of the new negative gearing rules to your circumstances, appropriate tax advice should also be considered.
Not sure how the new rules could affect your next property purchase? Speak with our team to review your borrowing position and explore suitable finance options.
Negative gearing changes 2026 FAQs
1. Can I use losses from one residential property against income from another?
Yes. From 1 July 2027, affected losses from an established residential property can still be used against income from other residential properties. Any remaining eligible losses can be carried forward for use against residential property income in future years.
2. What happens to carried-forward losses if my property becomes profitable?
If the property later generates positive rental income, eligible carried-forward residential property losses can be used to reduce that income. Any remaining losses can continue to be carried forward, subject to the applicable rules.
3. Can a second owner negatively gear a property that was originally a new build?
Generally, no. Subsequent purchasers cannot access the new-build negative gearing treatment. An exception applies where the property was first owned by the builder and occupied for no more than 12 months before its first sale.
4. Can I negatively gear a newly built property that has already been occupied?
Potentially. A newly built property may remain eligible where it was first owned by the builder and occupied for no more than 12 months before its first sale.
5. Do the new negative gearing restrictions apply to commercial property?
No. The new restrictions apply to residential property. Commercial property and other asset classes continue under the existing negative gearing arrangements.
6. Can I refinance my grandfathered property without losing its grandfathered status?
Yes, refinancing your investment property itself does not mean you have sold the property. If you continue to own a grandfathered investment property, it can continue to access the existing negative gearing rules until the property is sold. However, if you increase the loan or use some of the refinanced money for another purpose, the tax deductibility of the additional interest may be different. Consider getting tax advice before changing the loan structure.
7. What happens if I turn my main residence into a rental property?
This situation is being addressed in the Tranche 2 draft legislation. The proposed rules aim to preserve existing negative gearing treatment when an eligible main residence is first used to produce assessable income, such as when the property is first rented out. As these provisions are still in draft, the final treatment will depend on the legislation passed.
8. What happens to negative gearing when a property is transferred after death or a relationship breakdown?
The Tranche 2 draft legislation addresses certain property transfers resulting from death or relationship breakdown. The proposed approach is intended to preserve existing tax treatment in qualifying circumstances rather than automatically applying the new negative gearing restrictions because ownership has changed. These provisions are still under consultation, so the final rules may change before becoming law.
Final thoughts on negative gearing changes 2026
The 2026 negative gearing reforms change how Australian property investors need to think about established properties and new builds.
From 1 July 2027, affected losses from certain established residential properties will no longer be available to reduce unrelated income such as salary or wages. Eligible new builds, however, can continue to access negative gearing under the new arrangements.
For investors, this makes it more important to consider property type, rental income, ongoing costs, tax treatment and borrowing capacity before making the next purchase. The right property and finance strategy will depend on your individual circumstances, financial position and long-term goals.
Considering your next investment property? Book a call with our lending team to review your borrowing position and explore suitable finance options for your next purchase.
Disclaimer
The information provided in this blog is for general informational purposes only and does not constitute financial, legal, tax, or credit advice. Tax laws, eligibility criteria, and government guidance may change over time. Before making any financial decisions, consider seeking personalised advice from a qualified mortgage broker, accountant, or financial adviser based on your individual circumstances.
