The federal budget introduced major tax reforms for property investors, but it may still be possible to enjoy the potential tax benefits of negative gearing. Here’s how it could be done.
The 2026 Federal Budget may have changed many of the rules for property investors.
But a rental property can still be an attractive long-term investment.
And yes, you may still be able to benefit from negative gearing.
The key lies in the type of property you buy.
That’s because different rules will apply from 1 July 2027, depending on whether you buy a new or established property.
Let’s take a closer look.
What is negative gearing?
‘Negative gearing’ occurs when the costs of holding onto a rental property exceed the rent it generates each year.
Costs which may add up to exceed income include real estate agent fees, maintenance, mortgage interest and depreciation.
This loss is then claimed against an investor’s total annual income (including wages/salary), which can lower their personal tax bill.
Investors usually accept this annual loss on a rental property because they believe the profits that come from selling the place – known as ‘capital gains’ – will more than make up for the yearly shortfall.
How the rules for negative gearing are changing
From 1 July 2027, investors who buy an established property will only be able to offset the ongoing costs of a rental property against other income from residential properties or against capital gains arising from the sale of a rental property, rather than against their wage/salary income.
This may be fine for investors who own multiple properties.
The thing is, the vast majority of investors in Australia only own one rental property.
But that doesn’t mean the end of negative gearing.
Here’s the potential opportunity.
Under the Budget reforms, investors who purchase a newly built property – one that adds to housing supply – may still be able to use negative gearing as a way to save on tax and support personal cashflow.
Additionally, your current home could also be a negatively geared investment property in the future if you upgrade (or downgrade) into another home, and keep your existing home.
That’s because the new negative gearing rules that take effect from mid-2027 only apply to properties purchased after 12 May 2026 – even if it’s currently your principal place of residence.
Why is negative gearing still being allowed for new properties?
Australia faces a well-publicised housing shortage.
And as our population continues to grow, more people are competing for a place to live in.
By allowing negative gearing for newly built investment properties, the government is hoping to boost the supply of housing.
Newly built homes can have other advantages
It is important to speak with your accountant about any issues related to tax.
The ability to negatively gear newly built properties may be just one part of their appeal.
From 1 July 2027, additional Budget reforms mean that investors who buy a newly built property can choose to claim a 50% capital gains tax discount on the sale of the property (if they hold onto it for more than 12 months).
Or investors can use indexation to adjust gains for inflation and pay capital gains tax at a minimum of 30%. This is the method that will be used to determine capital gains tax on established properties.
There is another possible upside of a newly-built rental property, and that’s the potential to claim increased depreciation costs – both on the building as well as fixtures and fittings such as carpets, curtains and appliances.
Call us today
Yes, there have been reforms to how investment properties are taxed.
But financial experts generally agree that investment decisions shouldn’t be based on potential tax benefits alone.
Residential property has been a successful long-term investment for many Australians, and despite occasional dips, property prices have risen over time.
If you’re thinking about a rental property, call us for help finding an investment loan that could help make your goal a reality.
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