Negative Gearing Changes 2026: What Property Investors Need to Know Before 1 July 2027

The 2026–27 Federal Budget delivered the most significant rewrite of Australian investor tax in a generation. From 1 July 2027, negative gearing will be limited to newly built homes and the 50% capital gains tax discount will be replaced with inflation indexation plus a 30% minimum tax rate. For property investors holding (or planning to hold) established residential property, the next 14 months are a window to plan deliberately rather than react late. This guide explains what's actually changing, what's grandfathered, what isn't, and the practical questions investors are bringing to their accountants right now.

Quick answer: Under the 2026 Federal Budget, negative gearing for established residential property will be limited to investments made before 7:30pm AEST on 12 May 2026. Properties acquired after that date can still be negatively geared, but losses from 1 July 2027 onwards will only be deductible against rental income or against future capital gains on residential property not against salary or other income. New builds remain fully negatively geared. The 50% CGT discount will also be replaced with cost base indexation and a 30% minimum tax rate from 1 July 2027, with new builds offered a choice between the two methods. Existing investors are grandfathered, but the rules around CGT on accrued vs future gains are nuanced.

What actually changes on 1 July 2027

Two policies were announced together, and they're easiest to understand as a pair:

Policy	What changes	Who's affected
Negative gearing	Losses from established residential property can no longer be deducted against salary, business or other income only against rental income or future residential property capital gains. Excess losses are quarantined and can be carried forward.	Investors who acquire established residential property after 7:30pm AEST, 12 May 2026.
CGT discount	The 50% CGT discount is replaced with cost base indexation (gains adjusted for inflation) plus a minimum 30% tax rate on real (post-inflation) gains.	All investors selling residential property held under the new rules but with grandfathering for accrued gains on existing properties.
New builds carve-out	Newly built residential properties retain full negative gearing and a choice of either the 50% CGT discount or the new indexation method.	Anyone who invests in a newly built dwelling.
Affordable housing exemption	Investments that support government housing programs (e.g. affordable housing partnerships) are exempt.	Investors participating in qualifying programs.
Super fund CGT discount	No change super funds keep their existing CGT discount treatment.	SMSFs and APRA-regulated funds.

Note that everything above remains proposed legislation at the time of writing and could change as it moves through parliament. Investors should treat the timeline as the planning baseline but watch for amendments during the consultation and drafting process.

The grandfathering rules who's safe and who isn't

This is where most of the confusion sits. The simple version:

• Own an established residential investment property as of 7:30pm AEST on 12 May 2026? Your existing negative gearing arrangements continue unchanged for as long as you hold that asset. Salary deductibility is preserved.

• Buy an established residential property after that date? You can still claim losses, but from 1 July 2027 those losses are quarantined to rental and residential capital gains income only.

• Buy a new build at any time? Full negative gearing continues to apply, and you also get a choice on the CGT side.

• For CGT, gains accrued on existing properties up to the start date keep the 50% discount; gains accrued after 1 July 2027 fall under the indexation + 30% minimum tax rule.

The CGT split-treatment is the part that quietly creates the most work. To apportion accrued vs future gains accurately, you need a defensible market value for the property at the transition date. That's exactly the use case for a CGT property valuation under the new budget rules, and it's why valuation enquiries from accountants have spiked since budget night.

What this means in practice for different investor types

The single-property investor on PAYG income

Take a Sydney teacher who bought a unit in Parramatta in 2021 for $620,000. They're negatively geared by around $9,000 a year and currently offset that against their salary, getting roughly $3,000 back at tax time at a 33.5% marginal rate. Because they bought before 12 May 2026, they're grandfathered: nothing changes for as long as they hold this property. If they buy a second established property in 2027, however, the second property's losses will only offset rental income from either property and any future residential capital gains.

The portfolio investor

A Melbourne couple owns four investment properties acquired between 2014 and 2024. All are grandfathered. They've been considering a fifth property in 2027. Their decision now turns on three factors: the relative purchase price of an established home vs an equivalent new build, the cash-flow impact of losing salary-deductibility on the new property, and whether new-build supply in their target suburbs is competitive. Many investors in this position are running scenario models with their accountants well ahead of the start date.

The first-time investor entering after 12 May 2026

A Brisbane couple settling on their first investment property in November 2026 is in a different position. Established-property purchase: losses post-1 July 2027 are quarantined to rental income and residential CGT only. New-build purchase: full negative gearing continues. The cash-flow gap can be material for a couple with $5,000–$10,000 of annual rental losses, salary-deductibility at a 37% marginal rate can be the difference between a $1,850–$3,700 refund and zero benefit until the property either turns positive or is sold. New-build pricing premiums need to be weighed against this.

The retiree drawing down a portfolio

A retiree with three properties acquired pre-2020 who plans to sell one in 2030 will face the CGT split-treatment. Gains accrued before the transition date continue to qualify for the 50% discount; gains accrued after are subject to indexation and the 30% minimum tax. A defensible 1 July 2027 valuation becomes evidence that protects the discount on the larger, accrued portion of the gain.

What investors are actually doing right now

Across enquiries we're fielding from accountants and trustees, the most common pre-July-2027 actions include:

• Documenting current market value for every existing investment property to establish a CGT cost-base reference for the transition.

• Refreshing depreciation schedules to make sure all available deductions are captured before any cash-flow impact lands. Existing tax depreciation schedules remain unchanged by these reforms.

• Reviewing ownership structures with their accountant joint, sole, trust and SMSF holdings each interact with the new rules differently.

• Modelling new-build vs established for any planned 2027+ acquisition.

• Considering bring-forward sales of underperforming assets where the 50% discount on accrued gains makes a 2026–27 disposal more tax-efficient than a 2027–28 disposal.

• Watching the legislative drafting for changes to the proposed exemption categories and apportionment methodology.

None of these are universal recommendations every investor's tax position is different and decisions need to sit with a qualified accountant. But these are the questions on the table.

The new-build incentive opportunity or trap?

The carve-out for newly built dwellings is the most consequential design choice in the package. Investors who buy a new build:

• Retain full negative gearing against any income type.

• Choose between the 50% CGT discount (existing rules) or cost base indexation (new rules) at sale time.

• Continue to access full Division 43 capital works deductions and Division 40 plant and equipment deductions on items they install.

The opportunity is real, particularly for higher-income investors whose marginal tax rate makes negative gearing valuable. The trap is that new-build pricing in Sydney, Melbourne, Brisbane and the Gold Coast already carries a developer premium of 10–25% over comparable established stock. If investor demand redirects into new builds as the policy intends, that premium could widen. The 1 July 2027 economics depend heavily on the supply response and on the local market.

What's not changing

It's worth being explicit about what the budget did not touch, because rumours have circulated:

• Main residence exemption on the family home, unchanged.

• 6-year absence rule for converting a main residence to an investment, unchanged.

• SMSF property valuation requirements under SIS Reg 8.02B, unchanged. (See our guide to SMSF property valuations.)

• Super fund CGT discount for super-held property, unchanged.

• Stamp duty state-by-state, no federal changes.

• Land tax state-by-state, no federal changes.

• Foreign investor surcharges separate state-level regimes, not directly addressed in the federal package.

• Existing depreciation rules (TR 97/25, the post-9 May 2017 second-hand plant restriction), unchanged.

Why valuations are central to navigating the transition

Two specific valuation moments matter:

1. Pre-1 July 2027 baseline valuation. For any property held into the new CGT regime, a defensible market value at the transition date helps protect the 50% discount on the accrued portion of gains. Without one, you're relying on an after-the-fact reconstruction at sale time, which is materially weaker evidence.

2. Retrospective valuation at sale. When the property is eventually sold, you'll need both a transition-date value and a sale-date value to apportion gains correctly. Any property bought pre-budget but sold post-2027 will need this split.

For the deeper dive on valuations specifically, see our companion piece on why CGT property valuations matter under the new rules. To get a transition-date valuation locked in for your portfolio, book in a CGT property valuation here.

The bigger picture for the Australian property market

Treasury's stated intent is to redirect investor demand from established stock toward new supply, easing competition for first home buyers in established suburbs while supporting construction activity (particularly apartment pre-sales). Independent analysts are split on whether the package will achieve those outcomes:

• Supporters argue the package improves long-run tax fairness, removes a distortion that has favoured leveraged investors, and channels capital into new dwellings the market needs.

• Critics warn the changes could reduce overall investor activity, push rents higher in tight markets, and create a two-tier market where new builds carry an artificial premium.

Both views deserve attention, and the actual outcome will depend on supply elasticity, lender response, and how state governments respond on stamp duty and zoning. None of this changes the fact that the 1 July 2027 transition is now the most important date in the Australian property tax calendar.

Frequently asked questions

When do the negative gearing changes start?

The new rules take effect from 1 July 2027. Established-property purchases made after 7:30pm AEST on 12 May 2026 will be subject to the new rules from that date. Anything held before 12 May 2026 is grandfathered.

Can I still negatively gear an investment property bought today?

Yes. Any property acquired before 12 May 2026 retains existing negative gearing rules for as long as you hold it. Properties acquired after that date can still be negatively geared until 30 June 2027; from 1 July 2027 the new quarantining rules apply unless it's a new build.

What is "new build" treatment?

Newly constructed residential dwellings retain full negative gearing and offer a choice between the 50% CGT discount or cost base indexation at sale. The detailed eligibility criteria (e.g. how long after construction a property still counts as "new") will be set in the legislation.

Are SMSFs affected?

Super funds are not affected by the CGT discount changes. SMSFs holding residential property continue under existing rules, including the long-standing one-third CGT discount on assets held over 12 months.

Does the CGT change apply to my main residence?

No. The main residence exemption is unchanged. The reforms target investment-held residential property only.

Should I sell before 1 July 2027 to lock in the 50% CGT discount?

Possibly, but it depends on your overall position accrued gains on properties held into the new regime still receive the 50% discount on the pre-transition portion, so an early sale isn't always the optimal move. This is a decision to model carefully with your accountant, factoring in transaction costs, market timing and your full portfolio.

What documentation should I gather now?

At minimum: original purchase contract, capital improvement records since acquisition, current depreciation schedule, and a defensible market value as at the transition date. Together these protect your CGT cost base under the new apportionment rules.

Will the legislation actually pass as announced?

Tax legislation often changes between budget announcement and final passage. Investors should treat the announced design as the planning baseline, monitor parliamentary progress, and stay in touch with their accountant for updates. We'll update this guide as the legislation moves through parliament.

Get a transition-date valuation for your portfolio

If you own residential investment property and plan to hold it past 1 July 2027, a defensible transition-date valuation is the cheapest piece of CGT planning you'll do this cycle. Book in your property valuation here Australia-wide coverage across Sydney, Melbourne, Brisbane, Perth, Adelaide and major regional centres. For the complementary CGT-and-valuations explainer, read our 2026 Federal Budget CGT property valuations guide.

This article is general information about announced 2026–27 Federal Budget measures and is not personal tax, financial or legal advice. Property tax outcomes depend on individual circumstances and the final form of the legislation. Investors should seek qualified professional advice before making decisions.