The negative gearing changes are “grandfathered”, meaning they do not apply to residential investment properties already owned at the time of the Budget (12 May 2026).

These existing properties can continue to be negatively geared for as long as they are held. From 1 July 2027, however, negative gearing for residential investment properties is expected to be limited, broadly, to new residential builds. For established residential properties acquired after the transitional date, rental losses may be quarantined and carried forward rather than deducted against salary, business or other income.

Importantly, denied deductions are not lost. Quarantined rental losses can be carried forward and applied against future rental income from the property. Under the announced proposal, these carried‑forward losses may also be available to reduce a future capital gain on the relevant residential property, subject to the final legislation. While the changes are significant, there are still planning opportunities.

For example, if you acquire a rental property before 1 July 2027, there may be legitimate ways to maximise allowable deductions before the new rules commence.

It is also worth noting two key points. First, the proposed restriction applies only to residential investment properties — it does not extend to other investment assets such as commercial property, listed shares or units in a unit trust. Second, the negative gearing changes do not apply to SMSFs (and nor do the proposed changes to the CGT discount).

As always, the detail will depend on the final legislation following consultation and submissions, and further adjustments may still occur. If you already own a residential investment property and are considering selling, or if you are thinking about purchasing one in the future, it may be timely to discuss how these proposed rules could affect your position.