For decades, negative gearing has been one of the most talked-about strategies in Australian property investing — a way to offset the cost of an investment property against other income while waiting for the property to grow in value.

That’s no longer just a talking point. Following the 2026 Federal Budget, negative gearing rules for established residential property have actually changed, and the changes are now law. Here’s exactly what’s different, who’s affected, who’s exempt, and how investors can adjust.

What is negative gearing?

Negative gearing happens when the costs of owning an investment property — loan interest, rates, insurance, maintenance — are higher than the rental income it brings in. The property runs at a loss.

Under current tax rules, that $10,000 loss can, in many cases, be offset against other income — like your salary — reducing your overall tax bill. The strategy has always depended on rents and property values rising enough over time to outweigh the yearly loss.

What actually changed in 2026

In the 2026–27 Federal Budget, handed down on 12 May 2026, the Government legislated the most significant change to property tax rules in a generation. The key points:

• Negative gearing is being phased out for established residential properties — but only for properties purchased after 7:30pm AEST on 12 May 2026 (Budget night).
• The change takes effect from 1 July 2027. From that date, rental losses on affected properties can no longer be offset against salary or other personal income.
• Instead, those losses can only be offset against rental income or capital gains from residential property — and unused losses can be carried forward to future years.
• The 50% Capital Gains Tax discount is also being replaced, from 1 July 2027, with cost-base indexation and a 30% minimum tax on net capital gains — a change that applies broadly across shares and other assets too, not just property.

Who is exempt?

The reform is narrower than the headlines suggest. Several groups are carved out:

• Anyone who already owned an established property before 7:30pm on 12 May 2026 — including contracts signed but not yet settled — keeps the old rules for that property until they sell it.
• New builds remain exempt — investors can still negative gear a new build and access the existing 50% CGT discount on it, regardless of when it’s purchased.
• Superannuation funds and widely held trusts are excluded from the changes.
• Targeted exemptions also apply to build-to-rent developments and private investors supporting government housing programs.

Why this is contentious

Views on the reform tend to split along a few lines, and reasonable people land in different places:

• Investors holding established properties bought after the cut-off may find future purchases less attractive, and some worry about flow-on effects for property values.
• Renters and housing advocates broadly welcomed the move, arguing tax incentives had been pushing up prices for owner-occupiers and first-home buyers competing with investors.
• Some economists caution that reducing incentives for established-property investment could tighten rental supply over time, even as it may cool competition for owner-occupier homes.
• New-build advocates point out the exemption is deliberately designed to redirect investment toward new housing supply rather than existing stock.

Whichever view you hold, the practical question for investors is the same: how do you adapt?

How investors can position themselves

1. Judge a property on its own fundamentals, not the tax break

A good investment property should stack up even without negative gearing. Look for strong population growth, limited supply, infrastructure investment and genuine employment growth in the area — tax treatment should be a bonus, not the reason you bought.

2. Consider new builds on their merits — not just for the exemption

New builds keep access to negative gearing and the current CGT discount, which is now a genuine structural advantage. That said, construction costs remain high, so run the numbers on rental yield and build quality, not just the tax treatment.

3. Keep debt serviceable, not maximised

Leverage cuts both ways — a $500,000 property growing 7% a year builds $35,000 in equity, but the same leverage magnifies a downturn. Keep enough cash flow buffer that you’re never forced to sell at the wrong time.

4. Diversify beyond residential property

Australians have historically over-indexed on housing. Shares, ETFs, commercial property (which sits outside these residential reforms), bonds and commodities all behave differently across cycles — and commercial property in particular is drawing fresh attention from investors looking for yield outside the new residential rules.

5. Think about after-tax return, not headline return

With the CGT discount also changing from 1 July 2027, it’s worth modelling deals on after-tax outcomes rather than assuming today’s tax settings will still apply when you eventually sell.

Frequently asked questions

General information only — not personal financial or tax advice. Negative gearing and CGT rules are complex and depend on your individual circumstances; speak with a registered tax agent or licensed financial adviser before making investment decisions based on these changes.