Last updated: 12 May 2026
2026-27 Budget · Tax
Negative gearing limited to new builds from 1 July 2027
The 2026-27 Federal Budget restricts negative gearing for residential property to new builds from 1 July 2027. Net rental losses from established homes bought after 7:30pm AEST on Budget night will no longer be deductible against wages and salaries. Treasury estimates the change, paired with capital gains tax reform, will support an additional 75,000 first home buyers into the housing market over the next decade.
What is changing
Under the current rules, an investor who borrows to buy an investment property and runs a net loss after rent and expenses can deduct that loss against any other taxable income – including wages. Property accounts for over 98% of net losses claimed under negative gearing in Australia, with interest costs the main driver.
From 1 July 2027 the deduction is being limited. Net rental losses from established residential property will only be deductible against:
- Rental income from residential property; or
- Capital gains from residential property.
Losses you can't use in the current year are quarantined and carried forward indefinitely to offset future residential property income or gains. They are not lost – they just stop subsidising the rest of your tax return.
Who is exempt
- New builds that genuinely add to housing supply remain fully negatively geared.
- Properties held at 7:30pm AEST on 12 May 2026 are grandfathered – existing investors are not affected while they continue to hold the property.
- Investments that support government affordable housing programs are exempt.
- Commercial property, shares and other non-residential assets are unaffected.
Timeline
7:30pm AEST, 12 May 2026
Grandfathering cut-off. Any residential property held at this moment keeps full negative gearing indefinitely while the same investor owns it.
12 May 2026 – 30 June 2027
Transitional window. Established properties bought during this period can still be negatively geared in 2026-27, but losses are quarantined from 1 July 2027.
1 July 2027
Negative gearing restricted to new builds. Net rental losses from established property bought after Budget night are quarantined.
Worked example: Jason buys an existing rental in 2027
Jason buys an existing house in late 2027 and rents it out. Because he bought after Budget night, the new rules apply. In 2027-28 his loan interest, depreciation and maintenance exceed his rent by $10,000.
Under the old rules he would have written that $10,000 off his salary, saving roughly $3,700 in tax at a 37% marginal rate. Under the new rules the $10,000 is quarantined.
In 2028-29 the rent improves and Jason earns $6,000 of net rental income. The carry-forward loss eats that income to zero, so no tax is payable on it. He still has a $4,000 loss carried forward against future residential income or capital gains.
Adapted from Box 4.3, Budget Paper No. 1, Statement 4.
Why the Government is doing this
Treasury argues that negative gearing, combined with the 50% capital gains tax discount, has driven highly leveraged investment into existing housing and pushed prices up. The numbers in Statement 4 of Budget Paper No. 1 are pointed: around half the tax benefits from negative gearing flow to the top-earning 10% of Australians, and almost one in three investment properties sold in 2022-23 received an effective tax subsidy over the life of the investment.
Between 2019 and 2025, around 80-90% of investor housing lending went to existing dwellings rather than new construction. Carving out new builds keeps the tax incentive pointed at supply.
What it means for first home buyers
Treasury modelling suggests the negative gearing and CGT package will produce around 75,000 additional owner-occupiers over the next decade, with house price growth running roughly 2% lower over a couple of years compared to no policy change. At the current national median, that translates to a saving of around $19,000 for a buyer. The rental impact is modelled at less than $2 per week – well below the recent increases in Commonwealth Rent Assistance.
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Related reading
- 50% CGT discount replaced with indexation and a 30% minimum tax
- What the 2026-27 Budget means for first home buyers
- 2026-27 Budget: all property and tax changes explained
Frequently asked questions
When do the negative gearing changes start?
From 1 July 2027. Properties held at 7:30pm AEST on 12 May 2026 (Budget night) are grandfathered, so existing investors keep their current arrangements. The rules only bite on established residential property bought after Budget night.
Can I still negatively gear a new build?
Yes. Negative gearing remains fully available for residential property that genuinely adds to housing supply – broadly, new builds. Properties supporting government affordable housing programs are also exempt.
What happens to my losses if I can't deduct them?
Net rental losses from established residential property bought after Budget night will be quarantined. You can carry the loss forward and offset it against future rental income or capital gains from residential property – just not against your wages or other income.
Does the change apply to commercial property or shares?
No. The limitation applies only to net rental losses from residential property. Commercial property, shares, and other asset classes continue under existing rules.
I bought between Budget night and 1 July 2027 – what now?
Properties purchased after 7:30pm AEST 12 May 2026 and before 30 June 2027 can be negatively geared during 2026-27, but losses are quarantined from 1 July 2027 onwards.
Source: Budget Paper No. 1, Statement 4 (pages 152-157), Australian Treasury, 12 May 2026.
Disclaimer: This information is general in nature and does not constitute financial, legal, or tax advice. Calculations are estimates only and may not reflect your exact circumstances. Eligibility criteria and dollar amounts may change without notice. Always verify with the relevant government authority, your mortgage broker, or a licensed financial adviser before making decisions.