New Builds Are the Last Property Left Standing Under the New Negative Gearing Rules

From 1 July 2027 the tax system splits Australian residential property into two markets, and only one of them keeps the deductions investors have relied on for decades.

By Aus Investment Properties

From 1 July 2027, investors who buy an established residential property after 7:30pm on 12 May 2026 can no longer offset rental losses against salary or wages. Eligible new builds are exempt, keeping both negative gearing and a choice of capital gains tax method on sale. Anyone who owned a property, or was under contract, on Budget night is grandfathered.

What the new rules actually do

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 has passed the Senate, so the key provisions are settled. From 1 July 2027, net rental losses on established residential property purchased after 7:30pm AEST on 12 May 2026 can no longer be deducted against salary, wages or other income. Those losses are quarantined against residential rental income or capital gains from residential property, with unused amounts carried forward.

Eligible new builds are exempt. Investors who buy a qualifying new residential property can still deduct rental losses against their other income exactly as they can today, and they get a choice at sale time between the existing 50 per cent capital gains tax discount and the new cost base indexation method with its 30 per cent minimum tax rate. That choice is not available on established stock bought after Budget night.

An established property bought between Budget night and 30 June 2027 can be negatively geared up to that date, after which the restrictions apply. Commercial property is not affected.

What counts as an eligible new build

The test is whether a property genuinely adds to housing supply.

• Genuinely new dwellings qualify. A home built on vacant land, an off the plan apartment and a house and land package all add supply.
• Redevelopments qualify only if dwelling numbers increase. Replacing one house with a duplex or several townhouses qualifies. A one for one knock down rebuild, even a much larger one, does not.
• Renovations do not convert an established home. Substantial renovations or an extension adding bedrooms will not create new build status.
• Sale and occupancy history matter. A property loses new build status once occupied for more than 12 months and then sold, so the exemption follows the first investor.

The finer detail is being set by legislative instrument and further ATO guidance is still to come, so confirm in writing that any dwelling you contract on qualifies.

If you already own, nothing changes

Grandfathering is broad. Any residential investment property held at 7:30pm on 12 May 2026, including one under a binding contract that had not yet settled, continues under the current rules until it is sold. The treatment is based on when you acquired the property, not on whether you were negatively geared on the night.

The side effect is a lock in. Long term owners now have a strong reason to hold rather than sell, which should keep established listings tight.

Why the deduction is worth more in 2026

The cash rate sits at 4.35 per cent after three increases in 2026, with investor mortgage rates averaging around 6.4 per cent against a national gross yield near 3.5 per cent. On those numbers many purchases run at a loss in the early years, which is exactly when offsetting that loss against income matters most. Vacancy of 1.6 per cent and annual rent growth of 5.9 per cent are helping the income side recover. Yield focused formats such as dual occupancy and duplex builds close the gap faster than a single dwelling on the same land.

Outlook

Expect the market to trade as two tiers well before the 2027 start date. Commonwealth Bank has trimmed its dwelling price growth forecast to about 3 per cent to December 2026, down from 5 per cent, and estimates prices will end up roughly 3 per cent lower than they otherwise would have been. That drag sits with established stock, where the buyer pool loses its tax advantage. New builds face the opposite pressure.

The window to 30 June 2027 is the last period in which both categories are treated the same way. Use the advanced search filters at ausinvestmentproperties.com.au to compare gross yield, capital growth and vacancy across qualifying new build stock.

This is the biggest change to property tax in almost three decades, and it redirects negative gearing rather than removing it. From 1 July 2027 the deduction belongs to investors who fund new housing supply and to everyone who already held property on Budget night. If you are buying from here, whether a dwelling qualifies as a new build is the most valuable feature on the contract.

Key Takeaways

• Negative gearing ends for new purchases of established homes. Losses on established property bought after 7:30pm on 12 May 2026 are quarantined from 1 July 2027.
• Eligible new builds keep the deduction. They also allow a choice between the 50 per cent CGT discount and the new indexation method at sale.
• Existing owners are grandfathered. Property held or under contract on Budget night keeps current treatment until sold.
• Adding supply is the test. Vacant land builds, off the plan apartments, house and land packages and redevelopments that add dwellings qualify. One for one rebuilds and renovations do not.
• There is a transition window. Established purchases made now can still be negatively geared until 30 June 2027.