Negative gearing is one of those property terms that gets thrown around a lot. Most investors know it has something to do with tax. Many know it can reduce taxable income. But with the 2026 Federal Budget proposing changes from 1 July 2027, the real question is this:
What actually happens to investment property losses?
Let’s keep it simple.
What is negative gearing?
A property is negatively geared when the costs of owning it are higher than the income it produces. For example, your investment property might earn $35,000 in rent for the year, but cost $45,000 in interest, rates, insurance, maintenance, property management and other deductible expenses. That creates a $10,000 loss.
Under the current rules, that loss may be offset against your other income, such as wages or business income. That can reduce your taxable income, and potentially improve your tax refund or reduce your tax payable. In plain English, that is negative gearing.
What is changing?
The Government has announced that from 1 July 2027, negative gearing will be limited to new builds. Existing arrangements are set to remain unchanged for properties held before Budget night. Investors who buy new builds will still be able to deduct losses from other income.
For established residential properties purchased after Budget night, the treatment changes. Losses will still be able to be deducted against residential property income, and unused losses can also be carried forward to future years.
However, those losses will not be deductible against other income such as wages. This is the key point. The loss does not necessarily vanish, but it may no longer help your personal tax position in the same year.
Let’s look at a simple example
Let’s say you earn $120,000 from your job. You also own an investment property that makes a $12,000 rental loss for the year. Under the current system, that $12,000 loss may reduce your taxable income.
Under the proposed rules, if you bought an established residential property after Budget night, from 1 July 2027 that $12,000 loss may not reduce your wage income. Instead, it may be used against residential property income or carried forward. That means your tax result and your cash flow could look very different.
You may still have the same property.
You may still have the same rent.
You may still have the same expenses.
But you may not get the same tax benefit in that year.
Why carried-forward losses matter
Carried-forward losses are important because they mean the loss may still have value later.
For example, if your property makes a loss this year, but produces residential property income in a future year, that carried-forward loss may be used then. It may also be relevant when there is a future capital gain from residential property, but this is very different from using the loss straight away against wages.
The timing changes, and in property, timing matters. If you were relying on the annual tax benefit to support your cash flow, the change could affect how comfortably you hold the property.
This is really a cash flow issue
A lot of people talk about negative gearing as a tax strategy. But for investors, the more practical issue is cash flow. If your property costs you $250 per week to hold after rent, and your tax refund helps reduce the pain at tax time, that is one thing. If that refund is smaller, delayed, or no longer available in the same way, you need to fund more of the shortfall yourself.
That may affect:
- Your monthly household budget
- Your ability to save
- Your borrowing capacity
- Your ability to buy another property
- Your willingness to hold the asset long term
This is why investors need to understand the numbers before they buy. Not just the purchase price. The holding cost.
New builds are treated differently
Under the proposed changes, investors who buy new builds will still be able to deduct losses from other income. That makes new property more attractive from a tax perspective. But the investment still needs to make sense.
A new build with weak growth prospects, poor location, high strata costs or limited resale demand may still be a poor investment. Likewise, an established property with strong land value, scarcity and rental demand may still deserve consideration, even if the tax treatment is less generous.
The rules matter. But the asset matters too.
What about properties already owned?
The Government has stated that existing arrangements will remain unchanged for properties held before Budget night. That is the grandfathering piece. If you already own an investment property, this may provide some comfort. But it does not mean you should ignore the changes.
If you are planning to refinance, sell, buy again, restructure, or use equity, it is worth reviewing your position now. The rules may not force you to act, but they should prompt you to check your strategy.
Why this affects portfolio planning
For investors trying to build a portfolio, negative gearing changes may affect more than one property. If future losses cannot be used against wage income in the same way, investors may need stronger buffers, better cash flow and more careful property selection. The next purchase needs to be assessed not just on its own, but in the context of the whole portfolio.
A property that drains too much cash flow can slow down your next purchase.
A property that reduces your borrowing capacity can limit your future options.
A property that relies too heavily on tax benefits may become harder to hold if the rules change.
From our perspective
Negative gearing changes does not mean property investment is finished, but it means that investors need to be sharper. The old way of thinking was often: buy the asset, claim the loss, wait for growth. The new environment may require a stronger focus on cash flow, lending strategy, buffers and asset selection.
Before buying, investors should ask:
- Can I hold this property without relying too heavily on a tax refund?
- Does this asset help me get to the next purchase?
- Do I understand the after-tax cash flow?
- Have I spoken to both my broker and accountant before committing?
Because as much as tax can support a property strategy, it should never be the whole strategy.
General information only. This article does not take into account your personal financial, tax or legal circumstances. Speak to your broker, accountant and financial adviser before making any decision.
