Negative Gearing in 2026.
What Actually Changed.

There is a lot of noise right now about negative gearing. Investors are pausing. Questions are flooding in. And a surprising amount of advice is based on misunderstanding what the proposed changes actually say. This is a plain English explanation of what changed, what stayed the same, and what it means for investors who are thinking clearly.

First: What Is Negative Gearing?

Negative gearing describes the situation where the costs of owning an investment property exceed the income it generates.

For example: if your property earns $10,000 in rent per year but costs $12,000 to hold (mortgage interest, council rates, insurance, maintenance), you are running a $2,000 annual shortfall. Under the existing rules, that $2,000 loss can be deducted directly from your personal taxable income. If you earn $100,000 from your job, you pay tax on $98,000 instead.

That is negative gearing in plain English. And this is worth understanding clearly before anything else:

The distinction matters, because the investors most disrupted by these changes are those who treated the tax deduction as the reason to buy, rather than a side effect of owning a well-chosen property.

What the 2026 Budget Proposed

For existing properties: losses are carried forward, not immediately deducted

Under the proposed changes, if your investment property runs at a loss, you can no longer offset that loss against your personal income (your salary or other earnings) in the same year.

Instead, those losses are carried forward. They accumulate each year and can be used in the future to offset income from that same property once it becomes profitable.

For new dwellings: nothing changes

The proposed changes do not apply to new properties. If you purchase a dwelling that is less than one year old, traditional negative gearing still applies in full. You can still offset losses against your personal income in the year they occur.

This is why some advisers have been recommending house and land packages or off-the-plan builds. That reasoning has some logic. But it is worth understanding the complete picture before changing your strategy based on this exemption alone, as new builds carry their own set of risks including developer margin built into the purchase price and slower initial capital growth in many locations.

The Carry-Forward Model: What It Actually Means

This is the part that most commentary skips over, and it changes the picture significantly.

A typical residential investment property in Australia takes somewhere between five and seven years to become positively geared. That is, for the rental income to exceed the total holding costs. This is not a sign of a bad investment. It is the normal trajectory of a well-purchased property in a quality location.

Over those five to seven years, an investor with a $2,000 annual shortfall would accumulate somewhere between $10,000 and $14,000 in carried forward losses.

Once the property turns the corner and income exceeds costs, those accumulated losses can be used to offset that property income. The tax benefit has not been removed. It has been deferred.

For a long-term investor who has bought well, this is a meaningful change in timing, not a fundamental change in the investment case.

Capital Gains Tax: The Indexation Method

The budget also proposed changes to how capital gains tax is calculated when you eventually sell. Specifically, the indexation method is being reintroduced as an option alongside the existing 50% discount method.

The indexation method adjusts the cost base of your property in line with inflation, which can reduce the capital gain you pay tax on. Over a long holding period, this method tends to produce a favourable result.

Property in Australia has averaged approximately 6.8% annual growth over the past 30 years. For investors who hold quality property in quality locations over that kind of timeframe, the indexation method is likely to produce a better outcome than the old 50% discount. The government is, in effect, rewarding patience.

What This Means for the Property Market

When you combine both changes, the effect on investor behaviour is predictable: people will hold their properties for longer.

If selling triggers a capital gains event, and the indexation method rewards longer holds, there is a financial incentive to stay. If losses are carried forward rather than immediately deducted, investors are motivated to hold until the property performs before disposing of it.

The likely result is less stock coming to market over time. Less supply, combined with ongoing demand, puts upward pressure on both property prices and rents, particularly in established locations.

The policy intention is to encourage new construction by maintaining full negative gearing for new builds. In theory, this makes sense. In practice, 96% of dwellings built in Australia are built by private developers and builders. If private enterprise is not sufficiently incentivised to build, new supply does not materialise regardless of what policy intends.

The likely net effect for established property in quality locations: the supply constraint tightens further, and the fundamentals for long-term investors remain sound.

Why This Does Not Change the Strategy for Long-Term Investors

Here is the clarity that is missing from most of the commentary circulating at the moment.

The investors most affected by these changes are those who were relying on the immediate tax deduction as the primary reason to invest. They were buying in locations or at price points where the underlying property fundamentals were secondary to the tax treatment. For that approach, the changes are disruptive.

For investors focused on core locations, sound financial metrics, and properties with the right long-term trajectory, these changes do not undermine the investment case. If anything, they reinforce it.

The government is not telling investors to stop. It is telling them to hold. And for a patient investor who has bought the right property in the right location, holding is exactly what the plan was anyway.

The Questions Worth Asking Now

If you are an investor trying to make sense of your position, these are the most useful questions to work through:

Frequently Asked Questions

Has negative gearing been removed?

No. The proposed changes alter the timing of when losses can be claimed, not whether they can be claimed at all. For existing properties, losses are carried forward rather than immediately deducted against personal income. For new properties under one year old, traditional negative gearing still applies in full.

Should I buy a new build instead of an established property?

The tax treatment is better for new builds under the proposed changes. But tax treatment is one input into an investment decision, not the whole picture. Location fundamentals, purchase price relative to land value, rental yield, and long-term growth potential all matter. A property that is favourable on tax but poor on fundamentals is still a poor investment.

Will these changes push property prices down?

The evidence points the other way. If investors hold for longer and new supply remains constrained, established property in quality locations is likely to benefit from reduced turnover and sustained demand. The changes are more likely to drive prices up than down in the medium term.

When do the changes take effect?

As of the date of this article, the proposed changes have been announced in the Federal Budget but are not yet legislated. Speak with your accountant before making any decisions based on them.