The 2026 Negative Gearing Reform Explained

Negative gearing is one of the most talked-about features of Australian property investment — and one of the most misunderstood. A proposed reform, effective for new investment property contracts signed from 12 May 2026, would change how rental losses are used. This guide explains it in plain English, and you can model your own property with our Negative Gearing Calculator.

What negative gearing is today

A property is negatively geared when the deductible costs of owning it — loan interest, management fees, repairs, depreciation and so on — exceed the rental income it earns. Under current rules, that net rental loss can be deducted immediately against your other income, including your salary, reducing the tax you pay at your marginal rate. That annual tax saving is the core benefit investors rely on.

What the reform changes: loss quarantine

For properties caught by the new rules, rental losses would be quarantined — meaning:

• A rental loss can only offset other rental income in the same year, not your wages.
• Any unused loss is carried forward to future years, to be released when the property turns a rental profit, or against the capital gain when you sell.
• You generally still get the benefit eventually — but the timing shifts, creating a cash-flow cost that compounds over a long holding period.

That timing shift is the point most easily missed. The lifetime tax benefit may look similar, but receiving it years later — rather than as an annual refund — has a real cost. Our calculator projects this gap across up to 20 years.

Who is grandfathered

If a binding contract was signed before 12 May 2026, that property keeps the current negative gearing rules for as long as you hold it. Grandfathering attaches to the specific property, not to you: sell a grandfathered property and buy another, and the new purchase falls under the new rules. Enter your contract date in the calculator and it confirms your status automatically.

The new-build exemption

Newly constructed dwellings — including off-the-plan apartments and new houses — are proposed to be exempt from loss quarantine regardless of contract date. Rental losses from a qualifying new build can still be deducted against all income, which is intended to keep encouraging investment in new housing supply.

What happens to quarantined losses at sale

Under the proposed rules, quarantined losses you haven't used are added to the property's cost base when you sell, reducing your assessable capital gain. In other words, the deferred benefit comes back at sale time rather than disappearing — which is also where this reform connects to the separate 2027 CGT change.

Model your own property

Enter your contract date, rent, interest and income into the Negative Gearing Calculator to see your Year 1 impact and the cumulative difference over your holding period. It's free and runs entirely in your browser.