The government reduced the ability to use negative gearing in its 2026 Federal budget. This means that from 1 July 2027 you can no longer offset rental losses from residential investments against other income unless they are eligible new residential builds.
But there is some good news. If you already have residential property investments, you can still use negative gearing until you sell them. The changes do not apply to property owned at the time of the 12 May 2026 budget announcement or if you buy a house before 1 July 2027. But after that date, negative gearing no longer applies to property bought after the announcement or 1 July 2027. However, you can claim any losses from residential investments from any future capital gains when you sell them. So you need a good accounting/recordkeeping system.
How the changes work
The changes make it more complex. They create a dual system where which rules apply depend on the purchase date of a property and its type.
Rather than offsetting rental losses against your income or wages, you can only deduct losses from:
• Rental income.
• Capital gains when selling residential property.
If your rental losses are more than both of these, you can carry them forward.
As a result, the new negative gearing rules increase the compliance and administrative responsibilities as you must:
• Monitor when you buy a property to determine how negative gearing applies when you sell it.
• Keep accurate records of rental losses for applicable properties so you can offset them against future capital gains when sold.
To complicate things further, negative gearing still does apply to a new build.
What is classified as a new build?
The new rules do not apply to eligible new residential builds. You can negatively gear these properties and claim a 50% discount on the capital gains when you sell them.
Currently an eligible new build includes:
• An apartment bought off the plan before being constructed.
• Any residential building built on vacant land.
• Knocking down a single house and rebuilding a duplex in its place.
• Living in a new property for less than 12 months before it is sold for the first time.
The following property types are not eligible:
• A property recently renovated to include extra bedrooms.
• Replacing an older house with a new house on the same land.
• Living in a new property for more than 12 months before selling it for the first time.
• Building a granny flat adjacent to an established home.
If you are a property investor or want to buy an investment property, talk to Ben about how the changes will affect you. He can help you make the most out of your investment.
