Negative Gearing Explained: How It Works Now and What Changes on 1 July 2027

Updated for the 2025–26 income year, with 2026–27 changes noted. Reviewed 19 October 2026.

Negative gearing means your deductible investment costs are higher than the income the investment earns, so you make a loss that reduces your other taxable income. It is common with residential property. The rules change for many investors from 1 July 2027. This guide explains how it works today, the new law, and the questions to ask before you buy or sell.

How negative gearing works in 2025–26

Add up your rental income, subtract deductible expenses (interest, rates, insurance, management fees, repairs, depreciation and capital works). If the result is negative, the net loss reduces your other income, such as salary. The tax benefit depends on your marginal tax rate. A loss is still a loss: negative gearing only makes sense if you expect the property's value to grow by more than the after-tax cost of holding it.

What changes from 1 July 2027

• Existing investments are grandfathered. Residential properties held at 7:30pm AEST on 12 May 2026 keep the current treatment until sold.
• Established properties bought after that time: from 1 July 2027, net rental losses can only be offset against residential rental income or residential property capital gains. Excess losses are carried forward, not offset against wages.
• New builds keep full negative gearing.
• CGT discount replaced: for individuals, trusts and partnerships, the 50% CGT discount is replaced by cost base indexation plus a 30% minimum tax on capital gains, for gains accruing after 1 July 2027. Gains accrued before then keep the discount. New builds can choose either regime.

The ATO describes these measures as now law. Detailed ATO guidance on how losses are tracked and carried forward is still being released, so check the current position before acting.

Questions to ask before buying

• Is it an established property or a new build (and does it meet the new-build definition)?
• Can I afford the after-tax holding cost if losses can't reduce my wage income?
• Do I have other residential rental income or gains to absorb losses?
• How will the change in CGT treatment affect my expected after-tax return?

Worked example

Example (illustrative figures only – not real client data): Mark earns a salary and owns a rental bought in 2019. In 2025–26 the property earns rent of $28,600.

Total deductions $45,500 less rent $28,600 = a net rental loss of $16,900, which reduces his taxable income for 2025–26. Because he held the property before 12 May 2026, the same treatment continues after 1 July 2027 until he sells. If he bought a similar established property in 2027, a similar loss from 1 July 2027 could only offset residential rental income or residential capital gains, with the rest carried forward.

Checklist

• Confirm the date and time your contract was signed relative to 7:30pm AEST, 12 May 2026.
• Keep a depreciation schedule and all expense records.
• Model the after-tax cash flow under both old and new rules.

Common mistakes to avoid

• Assuming all existing properties lose negative gearing. Properties held at the announcement are grandfathered.
• Assuming new rules affect 2025–26 returns. They start 1 July 2027.
• Buying for the tax loss alone.

Record-keeping tips

• Keep contract dates and settlement statements: the contract date matters.
• Record carried-forward losses year by year once the new rules apply.

When to see an accountant

Get personal advice from a registered tax agent if:

• you're buying or selling residential property in 2026–2028;
• you own property through a trust, company or SMSF;
• you have an ABN, side business or rental property as well as your job;
• you have received an ATO letter, review or amended assessment.

Related guides

• Rental property deductions
• Capital gains tax
• all deduction guides

ATO sources for this guide

• ATO: Reforming negative gearing and capital gains tax
• Budget 2026-27: Negative gearing and CGT tax explainer
• ATO: Rental expenses
• ATO: Copyright notice

This guide is written in our own words. It draws on information published by the Australian Taxation Office, and some short phrases are quoted with attribution. Source material: © Australian Taxation Office for the Commonwealth of Australia. Top Accountants is not endorsed by, or affiliated with, the ATO.