Negative Gearing Australia 2026: How It Works and What Changed After the Budget

`Infographic explaining negative gearing in the Australian property market with a modern house and financial graphs

Last updated: July 2026  |  Reading time: 12 min

Negative gearing has been part of Australian tax law since 1936 and one of the most debated property investment strategies for decades. In May 2026, the federal government made its biggest change to the rules in almost 90 years — and if you own investment property, or you're thinking about buying, you need to understand exactly what changed and what didn't.

This guide covers how negative gearing works, the 2026 rule changes in plain language, and what they mean for existing investors versus new buyers.

What Is Negative Gearing?

Negative gearing occurs when the costs of owning an investment property exceed the rental income it generates. The "loss" — the gap between what you earn in rent and what you pay in interest, fees, maintenance, and other expenses — can be deducted from your other taxable income, including your salary.

In practical terms: if your investment property costs $45,000 per year to hold but only earns $38,000 in rent, you have a $7,000 net rental loss. Under the rules that have applied since 1936, that $7,000 reduces your taxable income — which means less tax owed.

🏠
Rental income
All rent received from tenants in the financial year
💸
Property expenses
Interest, management fees, maintenance, insurance, rates, depreciation
📉
Net loss = deduction
If expenses exceed income, the loss reduces your taxable salary income

The tax benefit is real but it's not free money. A $10,000 rental loss that saves $3,700 in tax (at a 37% marginal rate) still costs $6,300 out of pocket. Negative gearing only makes financial sense if the property grows in value enough over time to justify that ongoing cost.

The 2026 Budget Changes — What Actually Happened

On 12 May 2026 at 7:30pm AEST, the federal government announced major reforms to negative gearing as part of the 2026-27 Federal Budget. These are now law.

The key date is 7:30pm AEST on 12 May 2026. Whether you're affected by the new rules depends entirely on whether you owned (or were under contract to buy) a property before that specific moment.
Property typePurchased before 12 May 2026 7:30pmPurchased after 12 May 2026 7:30pm
Established residential property ✅ Grandfathered — old rules apply indefinitely while you hold it ❌ Negative gearing losses can only offset other rental income or future capital gains — NOT salary from 1 July 2027
New build / off-the-plan residential ✅ Old rules apply ✅ Exempt from changes — full negative gearing and 50% CGT discount remain available
Commercial property ✅ Unaffected ✅ Unaffected — changes only apply to residential property
Property in super funds / widely held trusts ✅ Exempt from changes ✅ Exempt from changes
Already under contract before 7:30pm on 12 May 2026? You're grandfathered. Even if settlement hasn't occurred yet, the property is treated as held at the announcement date — the new rules don't apply.

What Changes for New Buyers After 12 May 2026

If you purchased an established residential property after the budget announcement, here's what changes from 1 July 2027:

  • Losses cannot offset salary or wages. Unlike the old rules where a rental loss reduced your taxable income from all sources, losses from affected properties can only be offset against other residential rental income or future capital gains from rental properties.
  • Losses can still be carried forward. They don't disappear — they accumulate and can be applied when you have rental profits or when you sell the property and make a capital gain.
  • The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax rate on capital gains. This affects how much tax you pay when you eventually sell.
  • New builds remain fully exempt. If you buy a brand new property or build, none of these restrictions apply — full negative gearing and the existing CGT treatment remain available.
Cross-property offsetting within a portfolio: Based on the legislation, losses from affected properties can still be offset against profits from other affected properties in your portfolio. It's not quarantined property-by-property — it's quarantined within a "residential property pool." If one property loses $20,000 and another makes $20,000, the net position is zero.

Negative Gearing Calculator — 2026

📊 Negative Gearing Tax Saving Calculator

Estimate your annual rental position and tax saving. Applies to properties eligible under current rules.

$120,000
$32,000 / year
$38,000 / year
$7,000 / year
$5,000 / year
📉 Negatively geared — $48,000 total expenses vs $32,000 rental income

Net rental loss

-$18,000

deductible from salary

Marginal tax rate

37.5%

on income after rental loss

Tax saving

$6,750

per year from deduction

Cash loss (ex. depreciation)

-$13,000

actual out-of-pocket

Net after-tax cost

-$6,250

~$120 / week

Based on 2025-26 ATO tax rates. Depreciation is a non-cash deduction — excluded from cash loss calculation. This calculator applies to properties eligible for negative gearing under current rules. Seek tax advice for properties purchased after 12 May 2026.

What You Can Claim as Deductions

For properties eligible under the current rules, the ATO allows deductions for any expense incurred in earning rental income:

Immediately deductible (in the year incurred)

  • Mortgage interest (interest component only — principal repayments are not deductible)
  • Property management and agent fees
  • Council rates and water charges
  • Building, landlord, and contents insurance
  • Repairs and maintenance (must be genuine repairs, not improvements)
  • Pest control, garden maintenance, cleaning
  • Advertising for tenants
  • Accounting fees for rental income
  • Travel to inspect the property (limited — personal travel restrictions apply)

Claimed over time (depreciation)

  • Capital works (Division 43): Building structure, renovations — claimed at 2.5% per year over 40 years
  • Plant and equipment (Division 40): Appliances, carpets, blinds — claimed over the asset's effective life
Quantity surveyor report: A professional depreciation schedule from a registered quantity surveyor typically costs $500–$700 but can unlock thousands in additional deductions each year — particularly for properties built after 1985. Most investors recoup the cost in the first year.

Who Benefits Most from Negative Gearing?

The tax saving from negative gearing depends on your marginal tax rate — the higher your income, the more valuable the deduction:

  • Income $45,001–$135,000 (32.5% + 2% Medicare = 34.5%): a $10,000 rental loss saves $3,450
  • Income $135,001–$190,000 (37% + 2% = 39%): a $10,000 rental loss saves $3,900
  • Income above $190,000 (45% + 2% = 47%): a $10,000 rental loss saves $4,700

This is why negative gearing has historically attracted higher-income earners — the tax benefit scales with your tax bracket. The 2026 changes don't alter this for existing properties or new builds, but they do significantly reduce the benefit for people buying established properties after the budget announcement.

Common Questions

I bought before 12 May 2026 — am I affected by anything? ▼
Your negative gearing is fully grandfathered — the old rules apply for as long as you hold the property. The CGT changes do partially apply: the 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax, but only for capital gains that accrue after 1 July 2027. For the period up to that date, the 50% discount still applies. In practice, if you're a long-term investor, most of your gain will have accrued before 1 July 2027 anyway.
Do the changes affect new builds I buy after 12 May 2026? ▼
No — new builds are explicitly exempt from both the negative gearing changes and the CGT changes. If you buy a brand new property (or build one), you keep full access to negative gearing deductions against all income, and the 50% CGT discount remains available when you sell. This is a deliberate policy choice to encourage investment in new housing supply.
What exactly counts as a "new build" under the new rules? ▼
The legislation defines new builds as residential properties that have never been lived in or previously sold — this covers newly constructed homes, off-the-plan apartments, house and land packages, and substantially renovated properties that meet the definition used in the First Home Owner Grant framework. The ATO is expected to publish detailed guidance on edge cases, including subdivisions and conversions. If you're considering a borderline case, get specific advice from a registered tax agent before committing.
If I can't offset losses against salary, what happens to them? ▼
Losses from affected established properties (purchased after 12 May 2026) don't disappear — they're quarantined within your "residential property pool" and carry forward indefinitely. You can use them to offset rental income from other properties in the pool, or apply them against the capital gain when you eventually sell. The value of those losses is preserved; you just can't use them to reduce your salary income each year.
Is negative gearing still worth it for new purchases of established properties? ▼
It's more nuanced now. The annual tax benefit against salary disappears for new established property purchases from 1 July 2027 — which changes the cashflow calculation significantly. The investment still makes sense if the capital growth is strong and you can afford the holding costs without the tax offset. But the strategy of buying a negatively geared property primarily for the annual tax refund is far less compelling for established properties purchased after budget night. New builds remain a more tax-efficient option under the new framework.

Sources: ATO — Negative Gearing Reform, Australian Federal Budget 2026-27, ATO — Rental Properties

Disclaimer: This article is general information only and does not constitute financial, tax, or legal advice. The 2026 negative gearing and CGT reforms are complex and their application depends on your specific circumstances and property purchase date. Always consult a registered tax agent or licensed financial adviser before making property investment decisions.

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