Are there any changes to negative gearing rules for established properties in 2027?

Yes. A change to negative gearing takes effect from the 2027-28 income year, and it is not limited to newly built investments — established properties (existing homes that have already been lived in or rented) sit squarely inside its scope. Negative gearing is what happens when the cost of running a rental property, mainly loan interest, is higher than the rent it brings in, creating a net rental loss. Under current law, you can claim that loss against your other income, such as salary or wages.

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (royal assent 26 June 2026), a net residential rental loss arising from the 2027-28 income year onward is instead quarantined: it can no longer reduce the tax on your salary, wages or other income. It can still be used against a residential capital gain, or carried forward to reduce future residential rental income. Some existing holdings are grandfathered and a couple of owner types are excluded — both covered below. As at July 2026, this is enacted law, not a proposal.

What is negative gearing, and how does it work under current law?

Negative gearing occurs, in the ATO’s own words, “when you buy a rental property with the assistance of borrowed funds and the rental income is less than the deductible expenses (including interest on the borrowings)” — the result is a net rental loss. Under current law, you claim a deduction for the full amount of allowable rental expenses against your rental income and your other income (salary, wages or business income) in the same tax return. Where your other income isn’t enough to absorb the loss, the unused amount carries forward to the next income year. There is no dollar cap on this under current law, and no rule confining the loss to residential rental income only.

That current-law treatment is not changing for this income year or the next. Our guide to cash flow positive vs negatively geared property walks through the cash-flow side of holding a geared property in more detail. What changes is what happens to the loss from the 2027-28 income year on.

What exactly changes under the 2027-28 quarantine?

From the 2027-28 income year, new section 26-155 of the Income Tax Assessment Act 1997 quarantines residential rental deductions that exceed residential rental income. In plain terms:

Where allowable deductions on a residential rental property exceed the rental income it produces, the excess stops being deductible against your other income. It can be used only against a residential capital gain, or carried forward and offset against future residential rental income.

That is a change to where the loss can go, not a change to which expenses are deductible in the first place. The ordinary rules on what counts as a deductible rental expense — apportionment for private use, the removed deduction for travel to inspect a rental property, and the second-hand depreciating-asset restriction covered further down — still apply before this quarantine rule is even reached.

Does the change apply to established (existing) properties specifically?

Yes, and this is the part that’s easy to get wrong. Section 26-155 isn’t written as a new-build-only rule — it applies to residential rental deductions generally. The reform does carry a “new residential dwelling” exemption from the quarantine, under section 26-160. But as at July 2026, the legislative instrument meant to define what counts as a “new residential dwelling” for that purpose — required under section 26-160(4) — has not been registered.

Until it is, there’s no published boundary for that carve-out to lean on. An established property is, on any ordinary reading, not a newly built dwelling, so it sits outside whatever that carve-out eventually turns out to cover. In practice, the quarantine applies to rental losses on established properties in the same way as any other residential rental property, subject only to the grandfathering rule below.

Can I still claim rental losses on an established property against my salary after 1 July 2027?

Generally, no — not for a residential property you acquire from now on. If your allowable deductions exceed your rental income once the 2027-28 income year starts, the excess is quarantined: it reduces your tax bill only through a future residential capital gain, or a future year’s residential rental income, not through your salary or wages in the meantime. That holds whether the property is established or newly built, subject to the still-unsettled “new residential dwelling” boundary above, and subject to the grandfathering rule that follows.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

Is my established property grandfathered from the quarantine?

It depends on when you entered into the contract to acquire it, not on when you settled. The quarantine doesn’t reach back over holdings acquired early enough: interests acquired before 7:30pm AEST on 12 May 2026 keep the current-law treatment, with full deductibility against other income continuing for those holdings. An established property bought under a contract signed before that time is grandfathered. One bought under a contract signed at or after that time falls under the quarantine once the 2027-28 income year begins.

Are any owners exempt from the quarantine altogether?

Yes — two categories sit outside section 26-155 entirely: widely held unit trusts, and complying superannuation funds. An SMSF that qualifies as a complying superannuation fund falls into that second category. Superannuation rules are complex and the consequences of getting a fund’s tax position wrong can be significant — seek advice from a licensed financial adviser before making SMSF decisions.

Does this change affect depreciation deductions on an established property?

There’s a separate, older rule worth knowing here, and it’s easy to confuse with the 2027-28 change because both touch what an investor can deduct on established property. Since 1 January 2018, section 40-27 of the Income Tax Assessment Act 1997 has further restricted deductions for the decline in value of second-hand depreciating assets — plant and equipment such as ovens, carpets and air-conditioners — in residential rental property, for most individual owners, where the asset was acquired under a contract entered into at or after 7:30pm AEST on 9 May 2017. Because an established property usually comes with existing fittings already installed, this restriction routinely reduces or removes the depreciation deduction a buyer of an established property can claim on them.

It does not touch capital works deductions for the building structure itself, under a different part of the law (Division 43), which remain available at 2.5% a year over 40 years for eligible construction started on or after 16 September 1987 — established or new. This second-hand asset restriction is entirely separate from the 2027-28 negative gearing quarantine described above. It has applied since 2018 and changes which expenses are deductible in the first place, before any net rental loss is even worked out.

How does the quarantine interact with capital gains tax?

A quarantined loss can be used against a residential capital gain, which raises the natural next question: what capital gains tax rules apply to that gain? That’s its own reform — enacted in the same Act, but operating as a separate regime. From 1 July 2027, capital gains tax changes end the 50% discount for most individual owners, bring back CPI indexation of the cost base, and add a new minimum tax on capital gains.

This article doesn’t restate those mechanics; treat them as a distinct topic from the negative gearing quarantine, even though both start on the same date and sit in the same piece of legislation. Our guide to capital gains tax on property in Australia covers the underlying CGT concepts this quarantine draws on.

Current law vs the 2027-28 quarantine, at a glance

	Current law	From the 2027-28 income year
Net residential rental loss	Deductible against other income (salary, wages, business income) in the same year	Not deductible against other income — quarantined
If the loss isn’t fully used	Carried forward to the next income year	Carried forward against future residential rental income, or used against a residential capital gain
Applies to established properties	Yes	Yes — no general new-build exemption is confirmed; the section 26-160(4) boundary is unpublished
Grandfathered holdings	N/A	Interests acquired before 7:30pm AEST 12 May 2026 keep current-law treatment
Exempt owner types	N/A — current law has no such carve-out	Widely held unit trusts; complying superannuation funds

Direct property ownership with borrowing, and the negative gearing considerations above, describe one way to hold a rental property — it isn’t the only way to get exposure to residential property. Fractional models split the economic interest in a single property into smaller units, which changes the amount needed to start and how the ownership itself is structured. If you’d like to see how that mechanic actually works before weighing it against a directly held, geared rental property, here’s where to look.

What should property investors do next?

Whether the 2027-28 quarantine changes anything for you depends on things this article can’t know — your income, your loan structure, how long you’ve held the property, and whether your interest was acquired before or after the 12 May 2026 cut-off. None of the above is a prompt to buy, sell, hold or restructure a property before any particular date; the quarantine is a fact about timing, not a signal to act. A registered tax agent can work through how it applies to your own tax return, and a licensed financial adviser or buyer’s agent can help weigh whether a geared residential property still fits your broader approach. For the fundamentals behind property investing generally, see our guide to property investment in Australia.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.