Negative gearing changes 2026: established homes bought from 7:30pm, 12 May 2026 lose it from 1 July 2027

The negative gearing changes announced in the 2026-27 Budget are now law. From 1 July 2027, if you bought an established residential property from 7:30pm AEST on 12 May 2026, any net rental loss on it can no longer reduce your salary or other income. It can only be used against residential property income and residential capital gains, with the rest carried forward. Properties you already held at that moment keep the old rules until you sell, and new builds keep negative gearing indefinitely.

1 July 2027

What is negative gearing?

A property is negatively geared when the deductible costs of holding it (interest, rates, insurance, strata, repairs, property management, depreciation) are more than the rent it earns. Under the rules that have applied for decades, that net rental loss reduces your other taxable income, such as wages.

The Parliamentary Library's Bills Digest notes the term isn't defined in tax law and applies to any investment, not only housing.

The tax saving is the loss multiplied by your marginal rate. A $15,000 loss for someone on a 32% rate (30% plus the 2% Medicare levy) is worth about $4,800 a year in lower tax. That saving is what changes for properties caught by the new rules. For which costs are deductible in the first place, see our guide to rental property tax deductions.

What the negative gearing changes are, and their status

The Treasurer announced the changes in the Budget on 12 May 2026. According to the Budget tax explainer and Budget Paper No. 2, from 1 July 2027 the Government will:

• limit negative gearing for residential property investments to new builds, and
• replace the 50% capital gains tax (CGT) discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax on capital gains.

Both measures were put into the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, introduced on 28 May 2026. The Parliament's bill record shows it passed the House on 4 June 2026, passed the Senate with amendments on 25 June 2026 (the House agreed to them the same day), and received Royal Assent on 26 June 2026 as Act No. 49 of 2026. The ATO now describes the measures as law.

This article covers the negative gearing half. The CGT half affects almost every landlord, including grandfathered ones, and has its own explainer: what the CGT changes mean for landlords.

Key dates

Who is affected, and who is grandfathered

Grandfathered: anything you held on Budget night

If you owned a residential investment property at 7:30pm AEST on 12 May 2026, the negative gearing change does not touch it. The Budget explainer says these properties "will be allowed to be negatively geared in future years until sold". That includes a property where you had signed the contract but not yet settled. The Act makes this explicit: for the grandfathering test, you're treated as holding the property from the date you enter the contract.

There is no cap on the number of grandfathered properties, and no end date other than when you sell or otherwise dispose of the property.

Caught: established homes bought from Budget night

If you signed a contract for an established dwelling from 7:30pm AEST on 12 May 2026, the property falls under the new rules. There's a transition window: for the 2025-26 and 2026-27 income years, losses are deductible as usual. From 1 July 2027, they're quarantined.

Established homes contracted from 1 July 2027 are caught from day one.

Not caught: new builds

Investors who buy an eligible new build keep full negative gearing before and after 1 July 2027, with no time limit. What counts as a new build is covered below.

Which entities are covered

The explainer and the Act apply the quarantine to individuals, partnerships, companies and most trusts. Two groups are excluded: complying superannuation funds (including SMSFs) and widely held unit trusts, such as most managed investment trusts.

The same Act separately limits new SMSF limited recourse borrowing for real property to business real property, for arrangements entered into from 10 August 2026. Borrowing inside an SMSF to buy a residential rental is no longer an option for new arrangements.

Which assets are covered

Only residential dwellings. The Act excludes caravans and mobile homes, hotels, motels, hostels and boarding houses, student accommodation connected with an education institution, and boats. Commercial property and shares keep the existing treatment.

Which new builds keep negative gearing

The policy aim, in Budget Paper No. 2's words, is to direct the benefit of negative gearing "to investment that increases the housing stock". According to the Budget explainer, a new build is a residential property that genuinely adds to supply, which includes:

• a dwelling built on vacant land, or
• a site where an existing property is demolished and replaced with a greater number of dwellings.

The explainer gives these examples.

Two points matter for your next purchase.

The time window is being extended. The Budget explainer allowed a new home to be occupied for no more than 12 months before its first sale. The Treasurer's 4 August 2026 release says the draft definition treats a property as new if it genuinely adds to supply and was bought within 24 months of a certificate of occupancy being issued, to give builders time to sell stock. The Government says the final definition will go into primary legislation after consultation. As at 24 September 2026 that hasn't happened, so check the final wording before you rely on it.

New build status is not passed on. The explainer says subsequent purchasers of the dwelling won't get negative gearing or the 50% CGT discount for that property. If you buy new and later sell, your buyer is buying an established home in the eyes of the tax law, which may affect resale demand from investors.

What happens to your losses under the new rules

Here is how the Act treats losses on a caught property.

Losses are pooled across your residential properties, not tracked one by one. Each year, you compare the deductions for your caught residential properties with the rent they earn. If deductions are higher, the excess is not deductible that year. The legislation's own example lists interest, insurance and strata costs among the deductions, and on our reading the pool covers all deductions for the property, including depreciation.

Profits from your other residential properties can absorb it. If your grandfathered properties or new builds make a net rental profit overall, that profit reduces the excess. A caught property's loss can also be used against a gain on a residential property held as a revenue asset.

Anything left is carried forward. The unused excess becomes a "quarantined amount". It can be used to reduce residential capital gains in that year's CGT calculation, and anything still left carries forward to the next year. The Act sets no expiry. It is extinguished only in limited cases such as bankruptcy.

It can be used when you sell. Under the new method for working out a net capital gain, quarantined amounts reduce residential capital gains after capital losses and before any CGT discount is applied. That is how a landlord who runs losses for years eventually gets the value of those deductions, usually on sale.

It can't be added to the cost base. The Act stops quarantined expenses from also forming part of the property's cost base, so you can't count them twice.

What stays the same. Grandfathered properties and new builds are unchanged. A net loss on either still reduces your wage and salary income.

Worked examples

These examples are illustrative only. They use round numbers, ignore the timing of tax refunds, and assume a marginal rate of 32% (the 30% rate plus the 2% Medicare levy) unless stated. Your figures will differ.

Example 1: one established property bought from Budget night

Priya earns a $120,000 salary. In August 2026 she buys an established unit. Each year it earns $30,000 in rent and has $45,000 of deductions, mostly interest, for a $15,000 net rental loss.

By 30 June 2030, Priya has paid about $14,400 more tax over three years than she would have under the old rules. The deductions aren't lost: she holds $45,000 of quarantined amounts to use when the unit becomes positively geared (as rents rise or the loan falls) or against the capital gain when she sells.

The cost to her is timing and certainty. She funds the full $15,000 annual shortfall from her own pocket, with no yearly offset from lower tax. What the carried-forward amount is eventually worth depends on her tax rate and circumstances when she uses it.

Example 2: a grandfathered property and a new purchase

Tom owns a house he bought in 2019, which is grandfathered, and it now makes a $6,000 net rental profit. In September 2026 he buys an established apartment that runs a $15,000 net loss.

From 2027-28, his $6,000 profit on the grandfathered house absorbs $6,000 of the apartment's loss. The remaining $9,000 is quarantined and carried forward. His salary is unaffected either way.

If Tom's grandfathered house had instead made a $6,000 loss, he could still deduct that $6,000 against his salary, but the apartment's full $15,000 loss would be quarantined.

Example 3: buying a new build instead

Sam buys a newly built townhouse on a former vacant block in October 2026, within the draft 24-month window. It makes the same $15,000 loss as Priya's unit. Sam deducts it against salary every year, before and after 1 July 2027, saving about $4,800 a year at a 32% rate. When Sam eventually sells, the buyer won't get that treatment.

The Government's own explainer gives a similar comparison: a $14,810 loss (roughly the 2022-23 average for top-bracket investors) is worth $4,761 in tax to someone with $80,000 of other income and $6,961 to someone with $210,000, if it can be deducted in the year.

How many landlords this touches

The ATO's 2023-24 taxation statistics, last updated on 17 June 2026 and the latest available as at 24 September 2026, show 2,335,540 individuals with an interest in a rental property in 2023-24. Of those, 1,266,454, or about 54%, reported an overall net rental loss, up from 1,117,175 in 2022-23 and, according to the ATO's 2022-23 statistics, 949,519 in 2021-22. Across the 2.33 million individuals who reported net rent in 2023-24, the average result was a net loss of $1,148.

View data · Source: ATO Taxation statistics 2023-24, Individuals Table 8

Properties held	Net rent loss	Net rent neutral or profit
1	914,882	757,734
2	238,973	199,933
3	70,355	64,972
4	23,723	24,967
5	9,476	10,373
6 or more	9,045	11,107

Those numbers overstate who is affected, because grandfathering protects every property already held on Budget night. The relevant flow is new purchases. The Budget explainer says around 1% of taxfilers acquire negatively geared properties each year, about 230,000 individuals in 2022-23. Some of those buy new builds, which remain eligible.

Budget Paper No. 2 costs the negative gearing and CGT measures together at $3.6 billion in extra receipts over the five years from 2025-26, including $1.35 billion in 2028-29 and $2.28 billion in 2029-30. The Bills Digest reports the Treasurer's estimate of just over $40 billion over 10 years for the two measures combined.

Why the Government did it, and the criticism

The case for

The Government's argument, set out in the explainer, is that allowing rental losses to reduce wage income encourages leveraged investment in existing homes and gives investors a tax advantage owner-occupiers don't get. It points to home ownership among 25 to 34 year olds falling seven percentage points between 2001 and 2021, and house prices rising more than twice as fast as full-time earnings since 1999.

Treasury modelling cited in the explainer suggests the reforms will add around 75,000 owner-occupiers over the next decade, slow house price growth by around 2% over a couple of years compared with no change, and raise rents by less than $2 a week for a household paying the median rent. The Government also cites an OECD recommendation to phase out negative gearing. Supporters quoted in the Bills Digest include Paul Keating, economist Robert Breunig and the Grattan Institute.

The case against

Critics raised several points, recorded in the Bills Digest and Senate committee submissions:

• Rents. Westbridge Funds Management argued restricting negative gearing on established homes would reduce investor participation and put upward pressure on rents. Treasury's estimate is much smaller, but rent effects depend on how many investors step back and how fast new supply arrives.
• Uncertainty. CPA Australia and the National Tax and Accountants' Association criticised the Bill for leaving the definition of a new residential dwelling to be settled later. That is still the case as at 24 September 2026.
• Complexity. CPA Australia called the package one of the most complex in recent memory, with multiple start dates, grandfathering and exemptions.
• Broken commitment. The ABC reported that the change broke the Government's earlier position on negative gearing, and the Treasurer acknowledged it had come to a different view from the one it held 12 months earlier.

The Liberals, Nationals and One Nation voted against the bill, according to the Treasurer's 25 June 2026 release. As with any tax law, a future Parliament could change it.

Our view as landlords: the grandfathering is generous and the carry-forward means losses on caught properties are deferred rather than destroyed. The real cost falls on cash flow for new buyers of established homes, and on anyone who assumed they could swap one established property for another without consequence.

What this means for landlords

If you already own (bought before 7:30pm AEST on 12 May 2026)

• Your negative gearing is unchanged for as long as you hold the property. There is no deadline to sell or act.
• Grandfathering is tied to the property, not to you. Think carefully before selling a grandfathered property to buy another established one: the replacement is caught from 1 July 2027.
• Be careful with transfers. The Act protects a dwelling you "last acquired" before Budget night. Moving a property to a spouse, a trust or a company can be a fresh acquisition. The tranche 2 draft proposes preserving eligibility for dwellings acquired from a spouse through inheritance or relationship breakdown, but that isn't law yet. Get advice before restructuring.
• The CGT change still applies to gains from 1 July 2027. See our CGT explainer.

If you bought an established home from 7:30pm AEST on 12 May 2026

• Your losses are deductible as normal for 2025-26 and 2026-27.
• Budget now for 2027-28, when the tax offset against your salary disappears. If you've varied your PAYG withholding to reflect rental losses, review it with your accountant before 1 July 2027.
• Keep clean records of each year's quarantined amount. You'll need them to claim the carried-forward losses later, including on sale.
• Look at the cash flow levers: rent reviews within your state's rules, loan structure, and fixed versus variable rates. Our interest rates and rental market update covers where rates sit.

If you're planning to buy

• Run the numbers without the tax offset if you're looking at an established home. Can you carry the full shortfall until the property turns positive?
• If you're looking at new builds, check the property against the final new build definition once it's legislated, get the certificate of occupancy date in writing, and remember your eventual buyer won't get the same treatment.
• New investors should also read our new landlord guide for the non-tax basics.
• Talk to a registered tax agent or adviser before signing. This is general information, and the right answer depends on your income, loan and plans.