Negative gearing 2027: what changes, who's affected, and what to do

How negative gearing works today

When an investment property costs more to hold than it earns in rent, the resulting loss is deductible against all your other income — including your salary. On a $120,000 income, a $15,000 annual rental loss reduces your taxable income to $105,000. At a 37% marginal rate, that's a $5,550 tax saving per year, or roughly $463 per month back from the ATO.

This mechanism has been a cornerstone of Australian property investment strategy for decades. It lets investors accept a cashflow-negative property in exchange for a tax offset today, betting that capital growth will more than compensate over time. The higher your marginal tax rate, the bigger the annual tax saving — which is why the strategy has historically been most attractive to high-income earners.

Running costs that count as deductible expenses include mortgage interest, council rates, water rates, landlord insurance, property management fees, repairs and maintenance, and depreciation on fixtures and fittings. The sum of these minus your rental income is your annual rental loss — or surplus, if the property is positively geared.

What changes from 1 July 2027

From 1 July 2027, rental losses on established residential properties are ring-fenced for new buyers. Ring-fencing means the losses can only be offset against income from that same property — not against your salary or other income.

Ring-fenced losses are not destroyed. They accumulate against the property and can be applied when the property eventually generates surplus rental income, or as a capital loss deduction when you sell. Over a full investment cycle — buy, hold, sell — the total tax difference is smaller than it first appears. The immediate impact is a cashflow hit: you lose the annual tax refund that was partly funding the property's carrying cost.

Three things are worth being clear about:

• Existing investors are fully grandfathered. If you owned the property before 1 July 2027, your deductions continue unchanged forever.
• New builds are exempt from ring-fencing regardless of when you buy. Negative gearing is preserved on newly constructed residential properties.
• The rule is about the purchaser, not the property. An established property sold after 2027 moves from a grandfathered owner to a ring-fenced one.

The cashflow impact: a worked example

Assume a $650,000 established property, 80% LVR ($520,000 loan at 6.2%), renting for $2,100/month. Owner earns $120,000 and sits at a 37% marginal rate (including 2% Medicare levy).

Same property, same rental yield, same mortgage — but $417 more per month out of pocket for someone who buys after 1 July 2027 compared to someone who buys before it. That's $5,010 per year in foregone tax relief, every year until the property breaks even on rental yield.

The double hit: negative gearing and CGT in the same budget

The 2026 budget announced both changes on the same date, and they compound each other for property investors. Under the current rules, you accept annual cashflow losses (funded partly by tax refunds) in exchange for a large, concessionally taxed capital gain when you sell. The 50% CGT discount meant that only half your gain was taxed at your marginal rate.

From 1 July 2027, both sides of that equation change simultaneously:

Existing investors who were grandfathered on negative gearing are still fully exposed to the CGT change on the exit. If you've owned a property for 15 years with a $400,000 unrealised gain and plan to sell after July 2027, the CGT impact alone could exceed $30,000 compared to selling before the deadline. That analysis belongs in the CGT 2027 changes guide.

New builds: the exception that changes the calculus

Negative gearing is explicitly preserved for newly built residential properties purchased at any time, before or after 1 July 2027. The policy rationale is supply — the government wants to redirect investor demand toward adding new housing stock rather than competing with owner-occupiers for existing homes.

For investors, this creates a meaningful structural advantage for new builds after July 2027:

New builds also typically carry higher depreciation allowances because the fit-out, appliances, and fixtures are brand new. This increases the deductible expenses and therefore the rental loss available — which, on a new build, can still be offset against salary.

What to do before 1 July 2027

The bigger picture: why this happened

Australia is one of only a handful of OECD countries that allowed unrestricted offsetting of rental losses against unrelated income. New Zealand abolished it in 2021; the UK gradually restricted mortgage interest deductions from 2017 to 2020. The evidence from those countries is mixed — the reforms reduced investor demand but didn't cause dramatic price drops, partly because supply constraints remained.

The restriction is aimed at redirecting investor capital toward new builds (which add to housing supply) rather than established homes (which simply change ownership). Whether it achieves that aim depends on how attractive new build economics are relative to the grandfathered established market — which means the window between now and July 2027 will likely see elevated activity in both markets.