At a glance
- •Rental losses on established residential property can no longer offset wages or business income (from 1 July 2027)
- •New builds keep the existing negative gearing rules — designed to channel investment into new supply
- •Existing investments (acquired before 7:30pm AEST 12 May 2026) are grandfathered indefinitely
- •Quarantined losses can still offset future rental income or capital gains
- •Main residence and commercial property unaffected
How the new rules work
Under the current system, if your rental property runs at a loss, you can deduct that loss against your other taxable income (typically your salary). This reduces your overall tax bill in the year of the loss — the "negative" part of negative gearing.
From 1 July 2027, that offset is restricted to new-build properties only. If you buy an existing residential property after 12 May 2026, any rental loss is quarantined: it can carry forward and be used against future rental income from the same portfolio, or against capital gains when you sell — but it can't reduce your wages.
Three groups, three rules
Existing investors (pre 12 May 2026)
No change. Continue to deduct rental losses against wages or business income for as long as you hold the property.
New build investors
Existing rules continue. Rental losses still deductible against other income. Designed to channel investment toward new supply.
New investors in established property
Rental losses quarantined. Can offset future rental income from same portfolio, or capital gains on sale — but not wages.
Worked example
Scenario: $100,000 salary, $35,000 rent received, $50,000 in rental expenses. Net rental loss = $15,000.
Frequently Asked Questions
What is negative gearing in plain English?
It's when your rental expenses (mortgage interest, rates, maintenance) exceed the rent you collect. Under current rules, you can deduct the loss against your other income (wages, business profit). That reduces your tax bill in the year of the loss.
What changes from 1 July 2027?
For established (existing) residential property purchased AFTER 7:30pm AEST on 12 May 2026, you can no longer deduct rental losses against other income. Losses can still offset future rental income from the same investment portfolio, but they can't offset wages or business income.
What stays the same?
Negative gearing on new builds is preserved. Investments acquired before 7:30pm AEST 12 May 2026 are grandfathered indefinitely. Commercial property is not affected by the announcement.
Can I carry forward unused losses?
Yes. Losses you can't deduct against other income can be carried forward and used against future rental income or capital gains from the same residential property portfolio.
Does this affect my main home?
No. Your main residence isn't an investment property and isn't covered by these rules. The main residence exemption is unchanged.
Is this change law yet?
No. The change was announced in the 2026-27 Federal Budget on 12 May 2026 and requires legislation to take effect. Until law passes, current arrangements continue.
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Related Resources
General information only — not financial or tax advice. Subject to passage of legislation. Consult a tax professional for property-specific advice.
Last updated: 25 May 2026