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 legislated 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. The detailed implementation rules for some categories are still being finalised through further legislation and consultation, so investors should check the final rules before acting. Navigating this updated financial landscape requires a clear understanding of the tax rules, the key dates, and the strategic pivots now available to 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.

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

The final statutory definitions and eligibility tests for new builds and specified housing investments are subject to the legislation and implementation process. Investors should confirm eligibility before relying on the treatment.

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 7:30 pm AEST on 12 May 2026 retain existing negative gearing treatment. Net rental losses can continue to be deducted against other taxable income while the property remains eligible.
• Exemption for new builds: Investors buying eligible new builds that genuinely add housing supply can continue to access negative gearing against other taxable income under the new arrangements.
• Loss quarantining on established properties: For established residential properties bought after 7:30 pm AEST on 12 May 2026, from 1 July 2027, losses cannot be deducted against non-residential income, such as salary and wages. They can instead be deducted against other residential property income, including capital gains, with excess losses carried forward.

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: Certain investors supporting eligible government housing priorities, including specified affordable housing arrangements, are exempt from the restrictions.

The rules otherwise apply to individuals, partnerships, companies and most trusts.

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.

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.

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 treatment, but superannuation and borrowing rules are separate from the personal negative gearing rules. From 10 August 2026, new SMSF Limited Recourse Borrowing Arrangements (LRBAs) can generally no longer be used to acquire residential property. Existing arrangements and qualifying pre-commencement arrangements are subject to transitional protections. SMSFs can still use LRBAs to acquire eligible business real property, subject to superannuation law and the specific transaction.

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: Eligible new builds can continue to access negative gearing under the new rules. If you earn a high salary, this may preserve access to deductions, but eligibility depends on the statutory requirements. Just keep in mind that older homes in popular suburbs may have different growth characteristics, and construction costs such as site upgrades can materially affect the overall project cost.
• High-yield and cash-positive properties: Properties that earn more in rent than they cost to hold do not rely on a tax loss to support their cash flow. Regional towns, rooming houses and co-living properties can have different yield and risk profiles, so investors need to assess vacancy, management and regulatory considerations carefully
• Dual-income homes and granny flats: Adding a granny flat or second dwelling to a property may create additional rental income. Tax treatment depends on the property, construction and ownership circumstances.
• Commercial property: Offices, shops and warehouses are not affected by these residential negative gearing changes. Commercial property can have different rental yields, lease structures, vacancy risks and outgoings, so the economics should be assessed on the individual asset.
• Self-Managed Super Funds (SMSF): SMSF property has distinct tax and superannuation rules. New residential LRBAs are generally unavailable from 10 August 2026, while eligible business real property can remain available for borrowing subject to the superannuation rules. Professional SMSF advice is essential.
• Smarter rentvesting: Rentvesting in Australia means renting where you want to live and buying an investment property somewhere affordable. Investors may consider different locations and property types to balance rental yield, growth prospects and holding costs.
• Combining property and shares: To balance their money, investors may combine property with Australian shares and ETFs. Shares can provide dividends and, where applicable, franking credits, but investment outcomes vary.

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 is a modelling estimate, not a forecast that house prices will fall by 2%.

Will the negative gearing changes increase rents?

Treasury expects the impact on rents to be relatively small. Its modelling estimates that the reforms could increase rent by less than $2 per week for a household paying the median rent. This is a modelling estimate, and actual rental outcomes will depend on housing supply, demand, investor behaviour and other market conditions.

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?

Navigating changes to property tax rules requires aligning your borrowing strategy with clear tax and structuring decisions. At ZedPlus, we provide integrated mortgage broking and accounting support to help property investors optimise serviceability, maintain tax compliance, and protect portfolio growth under the updated negative gearing framework.

Here is how our team supports your investment strategy:

• Portfolio & borrowing capacity assessments: We evaluate how loss-quarantining rules affect your overall serviceability across APRA-regulated lenders and identify options to leverage existing equity.
• Tax loss tracking & quarantining: Our accounting team helps ensure your rental losses are properly recorded and carried forward in line with ATO requirements.
• Loan structuring for new builds & commercial assets: Whether you are pursuing off-the-plan builds, dual-occupancy projects, or commercial real estate, we can help arrange suitable finance structures, subject to lender policy.
• Refinancing & grandfathered holdings: If you own grandfathered residential properties, we can review your existing loan arrangements and available refinancing options without changing the property's ownership status.
• Cash flow & serviceability optimisation: We analyze your yields, out-of-pocket holding costs, and tax position to ensure your portfolio remains cash-flow sustainable under the 2026 rules.

Book a strategy consultation with our team today to evaluate your borrowing position and plan your next property move.

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. Some implementation details remain subject to further legislation and consultation.

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.