Negative gearing changes: What property investors need to know

Negative gearing changes: What property investors need to know 

Negative gearing isn’t being abolished. But from 1 July 2027, the tax treatment of residential rental losses will change for some property investors. 

Under the current rules, if the deductible costs of a residential investment property exceed the rental income it produces, the resulting loss can generally be deducted against other taxable income, such as salary or business income. 

From 1 July 2027, this will change for certain residential properties. 

Which scenario applies to you? 

Scenario 1: You already owned a residential property before 7:30pm (AEST) on 12 May 2026. 

The new negative gearing restrictions will not apply to properties or interests acquired before this time. These properties (whether they were investment properties or main residences that are to become investment properties) will be grandfathered under the existing negative gearing rules until they are disposed of. 

 This means that any eligible rental losses can continue to be deducted against your other income. 

Scenario 2: You purchase an established residential property after 7:30pm (AEST) on 12 May 2026.  

Existing negative gearing rules will continue to apply up to 30 June 2027. However, from 1 July 2027, any net rental losses from the residential property will generally be quarantined and can no longer be used to reduce your non-property income, such as salary, wages or business income. 

Instead, these losses can generally be carried forward and offset against future residential property rental income and/or capital gains from residential property. 

Scenario 3: You are considering purchasing a property that qualifies as an eligible new build or new residential dwelling. 

You will generally continue to have access to negative gearing under the new rules. 

This means that any eligible rental losses can generally continue to be deducted against your other assessable income, including salary, wages and business income. 

Please note that the definition of an eligible new build or new residential dwelling is technical and subject to specific eligibility criteria. Accordingly, not all newly constructed or recently renovated properties will necessarily qualify. 

What could the difference look like? 

Imagine you earn $150,000 a year and your residential investment property produces a $15,000 rental loss. 

Under the current rules, an eligible investor could generally use that $15,000 loss to reduce their taxable income from $150,000 to $135,000. 

For an established residential property purchased after 7:30pm (AEST) on 12 May 2026, the new rules will mean that from 1 July 2027 the $15,000 loss cannot be used to reduce your salary or other non-property income. 

Instead, the loss is carried forward and can generally be used against eligible future residential property income and residential capital gains. 

The deduction isn’t necessarily lost. The timing of the tax benefit changes. 

What does this mean for property investors? 

The changes do not necessarily make established property investment less attractive. 

Location, rental demand, borrowing costs, land value and long-term capital growth remain important considerations. 

However, if you are considering purchasing an investment property, it is now important to understand the after-tax cash flow and how the investment fits within your broader wealth strategy. 

How can Morrows Help? 

If you are considering buying an investment property or planning a wealth strategy, contact your Morrows adviser. We can help you understand the tax implications and how the investment fits within your broader wealth strategy. 

This article provides general information only and should not be relied upon as personal tax or financial advice. The application of the rules will depend on your individual circumstances and the type of property acquired.