Negative gearing after the 2026 Budget: what changed

For decades, Australians who bought a property that cost more to hold than it earned in rent could use that loss to reduce the tax on their wages. The 2026–27 Budget changed that for most investors buying from here on. The change is now law, and it starts on 1 July 2027.

This guide explains what negative gearing is, exactly what changed, who is and isn't affected, and what it means if you're thinking about buying.

What negative gearing is

A property is negatively geared when the cost of holding it is more than the rent it brings in. The costs are mostly loan interest, plus council rates, insurance, property management, repairs and depreciation. The shortfall is a net rental loss.

Until now, an individual could deduct that loss from their other income, such as a salary. The tax saved on that income reduced the cost of holding the property.

It never turned a loss into a profit. You still spent more than the rent brought in — you just got part of it back at tax time.

What changed in 2026

On 12 May 2026, the Government announced it would limit negative gearing on residential property to new builds. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament in June, and the ATO now describes the measures as law.

From 1 July 2027, for an established residential property bought from 7:30pm AEST on 12 May 2026:

• a net rental loss can only be deducted against income from residential property, including capital gains — not against wages or other income
• any loss you can't use in a year is carried forward to future years

New builds keep negative gearing exactly as it works today, before and after 1 July 2027.

Who is affected, and who isn't

Whether a property keeps negative gearing depends on when you bought it and what it is.

According to Treasury's Budget explainer, the change applies to individuals, partnerships, companies and most trusts. Widely held trusts, such as most managed investment trusts, and superannuation funds are excluded. Commercial property and shares aren't affected at all.

What counts as a new build

A new build has to genuinely add to housing supply. Treasury's examples include an apartment bought off the plan, anything built on previously vacant land, and a duplex that replaces a single house. A knock-down rebuild that replaces one house with one house doesn't qualify, and neither does an extension.

Under Treasury's Budget explainer, the treatment belongs to the first sale: a later buyer of the same home is treated as buying an established property. We cover this in detail in new build or established?

What happens to a loss you can't use

It isn't lost. It's quarantined — held over and carried forward until you have residential property income or gains to use it against. That happens when:

• a residential property you own makes a rental profit, typically as rents rise over the years, or
• you sell a residential property for a capital gain, and the carried-forward losses reduce the taxable gain

Treasury's explainer walks through an example.

That $186 is the headline, but it hides the part that matters most to your budget: timing. Under the old rules, Yoonseo's refund would have arrived each year while the property was costing her the most. Under the new rules she funds the whole shortfall herself in those early years and only gets the benefit later.

And a carried-forward loss only helps if the income or gain eventually turns up. If a property never becomes cash-flow positive and is sold without a gain, the losses may do little for you.

What it means if you're buying now

Run the numbers without the refund. For an established property bought today, the before-tax holding cost is what you'll be paying from 1 July 2027. Ask whether you can carry that for years, through a vacancy, a repair bill or a rate rise. The Tax & cashflow calculator on our home page has an Established / New build switch so you can see both.

Rental yield matters more than it used to. A property that's closer to paying its own way needs less out-of-pocket support, and uses up its carried-forward losses sooner.

Don't buy a new build for the tax treatment alone. It keeps negative gearing and the 50% CGT discount, but a new build can come with a price premium, less land and off-the-plan risks. The tax is one input, not the decision.

Think twice before selling a grandfathered property. If you already own an established property bought before the cut-off, it keeps negative gearing until you sell. Selling it to buy another established property swaps that position for the new rules.

Ownership structure matters. Whose name a property is in affects whose income any rental profit and loss belongs to. Get advice on this before you sign — it's hard and expensive to change afterwards.

What hasn't changed

• Rental expenses are still deductible against rental income. The change is about what a net loss can be used against. See what you can and can't claim.
• A property that makes a rental profit is taxed as it always was.
• Your own home remains exempt from capital gains tax.
• Properties you held before 7:30pm AEST on 12 May 2026 keep today's rules until you sell them.

Capital gains tax is changing too, on a similar timetable, and the two changes compound. Read capital gains tax: the 2027 changes next.

Common questions

Does it matter when I signed the contract or when I settled?

For properties held at the announcement, Treasury's explainer says a contract entered into before 7:30pm AEST on 12 May 2026 counts, even if it hadn't settled. If your purchase was close to that time, confirm your position with a registered tax agent using your contract date.

Can losses from one property be used against rent from another?

Treasury says quarantined losses can be deducted against income from residential properties, including capital gains. If you own more than one residential property, how the losses and profits combine across them depends on your circumstances — have a registered tax agent confirm it.

I bought an established property in June 2026. What happens this financial year?

Properties bought between the announcement and 30 June 2027 can be negatively geared during that period. The loss restriction applies from 1 July 2027.

Does this affect my SMSF?

No. Superannuation funds, including self-managed funds, are excluded from the negative gearing change. But a separate change passed in the same Act: since 10 August 2026, an SMSF can't take out a new loan to buy residential property. See buying property through an SMSF.