The Federal Budget has put investment property back at the centre of Australia’s housing debate.

For many investors, one of the biggest talking points is negative gearing changes. It has long been part of the way Australians structure property investments, especially when rental income does not fully cover loan interest, maintenance, rates, insurance and other holding costs.

Under the 2026–27 Federal Budget, the Government announced proposed changes that would limit negative gearing for residential investment properties to new builds from 1 July 2027. Existing arrangements are expected to remain unchanged for properties held before Budget night. Importantly, the Australian Taxation Office has confirmed these changes are not yet law.

Watch this video below to see what Trevor thinks about all the federal budget results.

What is negative gearing?

Negative gearing occurs when the costs of owning an investment property are higher than the rental income it produces.

These costs can include loan interest, council rates, insurance, repairs, maintenance, property management fees and other deductible expenses.

Under the current rules, many investors can offset that rental loss against other taxable income, such as salary or business income. This can reduce their tax payable and help manage the cash flow shortfall while they hold the property for potential long-term growth.

This strategy has been common across many parts of Australia, especially in established suburbs where investors are often focused on capital growth rather than high rental yield. For example, an older family home in an area such as Glen Waverley may attract strong tenant demand and long-term buyer appeal, but it may not always deliver a high enough rent to cover all holding costs from day one.

What Has the Federal Budget Proposed?

As part of the 2026–27 Federal Budget, the Government announced proposed reforms to negative gearing and capital gains tax. The ATO has stated that these measures are not yet law and are intended to apply from 1 July 2027.

Under the proposal, negative gearing for residential investment property would be limited to new builds from 1 July 2027. Properties held before Budget night, which was 7:30pm AEST on 12 May 2026, would be exempt from the negative gearing changes.

For established residential properties purchased after Budget night, losses would still be deductible against residential property income. However, unused losses would be carried forward rather than deducted against other income such as wages.

Why New Builds May Become More Attractive

The proposed changes are designed to direct more investor demand toward new housing supply.

Under the Budget papers, investors who buy new builds would still be able to negatively gear those properties. That means if the property makes a rental loss, the investor could still use that loss to reduce other taxable income, including salary and wages.

This could make new apartments, townhouses and house-and-land style investments more appealing to some buyers, particularly where cash flow is a priority.

For example, an investor comparing an established unit in a middle-ring Melbourne suburb with a newly built townhouse may need to look beyond purchase price and rental income. The tax treatment could become a much bigger part of the decision.

Established Properties May Still Have a Role

The proposed changes do not mean established properties are no longer worth considering.

Many established homes and units still offer features investors value, including larger land components, proven rental markets, established infrastructure and strong resale appeal. In suburbs with schools, transport links and employment access, demand can remain resilient over time.

A suburb such as Mount Waverley is a good example of where investors may look at more than just short-term tax benefits. Established homes in family-friendly areas can still appeal because of land value, school zoning, transport access and long-term owner-occupier demand.

The difference is that investors may need to be more careful with cash flow modelling. If losses from an established property can no longer be used to reduce wage income, the investor may need to fund more of the shortfall personally.

Capital Gains Tax Is Also Part of the Proposal

Negative gearing is not the only change investors need to understand.

The Budget also proposes replacing the current 50% capital gains tax discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains from 1 July 2027.

The CGT changes would only apply to gains arising after 1 July 2027. Investors in new builds would be able to choose either the existing 50% CGT discount or the new arrangements.

This matters because many property investors rely on long-term capital growth as a major part of their return. A property that looks attractive under the current CGT settings may need to be reassessed if the proposed rules become law.

For Property Investors

If the proposed changes pass, investors will need to be more selective and more numbers-focused.

Before buying, it will be important to consider:

• whether the property is a new build or established dwelling
• expected rental income
• loan interest and holding costs
• potential tax treatment of rental losses
• likely capital growth
• future CGT impact
• how long the property is likely to be held

The right decision will depend on the investor’s income, borrowing position, risk tolerance and long-term goals.

Should Investors Act Now?

Investors should avoid making rushed decisions based only on headlines.

The proposed changes are significant, but they are not yet law. The details, timing and final legislation will matter. Anyone considering buying, selling or restructuring a property portfolio should seek professional tax and financial advice before taking action.

For some investors, a new build may become more attractive. For others, an established property may still make sense because of its location, land value or rental profile. The key is to test the numbers under both current and proposed settings.

Conclusion

The Federal Budget could change the way Australians approach investment property.

Negative gearing has long helped investors manage holding costs while building long-term wealth through property. If the proposed reforms become law, future investors may need to place greater emphasis on cash flow, property type and tax structure.

Investment fundamentals still matter. A good property in a strong location can still be a good investment. But tax planning, timing and property selection may become more important than ever.

Before making any major decision, speak with a qualified tax adviser, mortgage broker or financial planner who can assess your personal situation.