What Do the 2027 Negative Gearing Changes Mean for Property Investors?

Answering: What do the 2027 negative gearing changes mean for property investors in Australia?

Estimated reading time: 8 min read

The short answer is that negative gearing is not being abolished for everyone, but it is being narrowed in a way that changes the maths for anyone buying established residential property from here. Under the 2026-27 Federal Budget announced at 7:30pm AEST on 12 May 2026, negative gearing on established homes bought after that moment is set to end from 1 July 2027. Rental losses on those properties will be quarantined to residential property income and carried forward, rather than deducted against your salary. New builds stay exempt and keep both negative gearing and a capital gains tax choice. These are announced measures still subject to the passage of legislation, so treat the detail as current guidance rather than settled law.

If you built a plan around buying, holding at a loss, and being rewarded by capital growth later, it is reasonable to feel that the ground has shifted. That strategy leaned on a yearly deduction against your wages, and for established property that deduction is the part being removed.

The reality is that what the changes mean for you depends almost entirely on two things: what you already own, and what you buy next. An investor who settled before Budget night is in a very different position to one signing a contract today. Based on The Harmony Group’s team experience across more than 200 delivered projects, the investors adjusting most calmly are the ones who already understood their cashflow rather than their tax loss.

This guide explains exactly what is changing and when, what it means depending on your own situation, and where new builds and purpose-built co-living sit under the new rules. It is general information, not personal tax advice, so use it to ask sharper questions of your accountant.

Key Insights

• Negative gearing on established residential property is set to end from 1 July 2027 for purchases made after 7:30pm AEST on 12 May 2026. Losses will be quarantined to residential property income and carried forward, not deducted against wages.
• Properties owned at Budget night, including those under contract and awaiting settlement, are grandfathered and keep negative gearing until they are sold.
• New builds remain exempt. They retain negative gearing plus a choice between the existing 50 per cent CGT discount and the newly announced indexation method with a minimum 30 per cent tax on sale. Purpose-built co-living is, by definition, a new build.

Keep reading for the complete guide.

Table of Contents

• What Is Actually Changing, and From When
• What It Means Depending on What You Own
• Where New Builds and Co-Living Fit

What Is Actually Changing, and From When

The 2026-27 Federal Budget draws a clear line between established property and new builds. For established residential property purchased after 7:30pm AEST on 12 May 2026, rental losses will only be deductible against residential property income from 1 July 2027, including capital gains on the sale of a rental property. Anything left over is quarantined and carried forward to future years, so it no longer reduces your salary or wage income.

There is a short transitional window. An established property bought after the announcement may still be negatively geared against other income until 30 June 2027, after which those deductions may be denied. Alongside this, the Budget announced that the 50 per cent capital gains tax discount will be replaced with an inflation-based discount and a minimum 30 per cent tax on gains from 1 July 2027, applying to future gains only.

New builds are treated differently and this is the detail that matters most. Investors who buy an eligible new build can still deduct rental losses against other income, and they keep a choice between the existing 50 per cent CGT discount and the new arrangement. In effect the reform creates a dual system, where the rules depend on both the property type and the purchase date.

• Check each property’s purchase date against the 7:30pm, 12 May 2026 cut-off.
• Separate established holdings from any new-build options when you plan.
• Confirm the current legislative status before you act, because these are announced measures.

What It Means Depending on What You Own

The reform does not treat all investors the same, and the single most useful thing you can do is work out which group you are in. Most people land in one of three positions, and the right next step is different for each. The table below is a plain-language guide, not personal advice, so use it to frame the conversation with your accountant rather than to make the call alone.

Your position	What the changes mean	A sensible first step
You owned the property before Budget night	Grandfathered. You keep negative gearing under the current rules until you sell, including for properties under contract at the announcement.	Confirm your grandfathered status in writing with your accountant, and factor it into any decision to sell.
You bought established property after 12 May 2026	You may negatively gear until 30 June 2027. From 1 July 2027 losses are quarantined to property income and carried forward, not offset against wages.	Model your holding cost without the wage deduction from 1 July 2027, so there are no surprises.
You are planning to buy now	Your choice of established versus new build now carries a lasting tax difference. New builds keep negative gearing and the CGT choice; established property does not.	Compare options on cashflow first, then tax treatment, rather than relying on a yearly loss.

For the second and third groups, the practical shift is the same. A strategy that depended on a yearly deduction against your wages loses much of its point once those losses are quarantined. That is why many investors are now looking at properties designed to produce positive cashflow rather than an annual paper loss, a comparison we cover in detail in our guide to positive cashflow versus negative gearing after 2026.

• Work out which of the three positions you are in before changing anything.
• Ask your accountant how quarantined losses affect your cashflow from 1 July 2027.
• Treat established and new-build options as genuinely different assets now.

Where New Builds and Co-Living Fit

The clearest read of the reform is that it steers investment toward new housing supply, and it does that by keeping new builds on the favourable side of the line. Purpose-built co-living sits squarely in that category. It is designed and constructed for shared living from the ground up and certified to Class 1B, rather than adapted from an existing house, which is what gives it new-build status and the negative gearing and CGT choice that established property loses.

The tax treatment is only part of the appeal. Because a purpose-built property lets rooms individually to well-matched tenants, it is designed to produce income from settlement rather than a loss to be claimed at tax time. Across The Harmony Group team’s delivered projects the historical average gross yield has been 10.8 per cent, with occupancy held above 98 per cent through specialist management. Those are historical results and past performance is not a guide to future returns, but they show what a cashflow-first model can look like. For the fuller picture, our guide to the positive-cashflow alternative walks through how the numbers come together.

Not every site or situation suits this approach. The Harmony Group applies a 118-point analysis framework to each opportunity and declines roughly 85 per cent of the sites it assesses, which is the opposite of a volume play. If co-living is not right for your circumstances, an honest assessment will tell you why. New-build status also interacts with certification and finance, which is why it is worth understanding what Class 1B certification means for investors before you compare options.

• Confirm any co-living property is purpose-built and Class 1B certified.
• Ask how new-build status interacts with your own tax position.
• Judge each option on cashflow and suitability, not on a tax break alone.

The 2027 negative gearing changes reward new housing supply and narrow the old buy-and-hold-at-a-loss playbook for established property. Purpose-built co-living sits on the new-build side of that line, and with a historical average yield of 10.8 per cent the team reports across more than 200 projects, the focus is on assets built to pay their own way. Because the final detail is still being settled in legislation, speak to the team or your adviser for the current position before you plan around it.

For a deeper look, visit The Harmony Group to explore how we approach positive-cashflow property structuring.

Frequently Asked Questions

Q: What do the 2027 negative gearing changes actually mean for property investors?

A: From 1 July 2027, negative gearing on established residential property bought after 7:30pm on 12 May 2026 is set to end, with rental losses quarantined to residential property income and carried forward rather than offset against wages. New builds stay exempt and keep negative gearing plus a CGT choice, and properties owned before Budget night are grandfathered. These are announced measures still subject to legislation, so confirm the current position with the ATO or a licensed adviser.

Q: Does the change affect property I already own?

A: Generally no. Properties held at 7:30pm on 12 May 2026, including those under contract awaiting settlement, are grandfathered and can continue to be negatively geared under the current rules until they are sold. It is still worth confirming your status in writing with your accountant.

Q: Are co-living or SMSF-held properties treated as new builds?

A: Purpose-built co-living is a new build by nature, designed and certified for shared living from the ground up, so it falls on the exempt side of the reform. How the rules apply to a property held in an SMSF depends on your structure and the final legislation, which is covered in our guide to whether co-living suits an SMSF. Confirm the detail with a licensed adviser.

Q: What is a sensible first step given the changes?

A: Work out which of the three investor positions you are in, then book a free, no-obligation strategy session to talk through your options. The session is an honest assessment of whether purpose-built co-living fits your goals, and if it is not suitable, you will be told why rather than sold a property.

Want to Learn More?

The Harmony Group’s team brings 15 years of specialist experience and a track record across more than 200 delivered co-living projects. The approach is educators-first: clear information, honest assessments, and a focus on assets that are built to pay their way, especially as the tax landscape shifts.

Citations

• “Tax reform, Budget 2026-27”: The Australian Government’s budget paper confirms negative gearing on established property is limited from 1 July 2027, that losses are quarantined to property income, that new builds keep negative gearing and a CGT choice, and that the 50 per cent CGT discount is replaced with an inflation-based discount and a minimum 30 per cent tax. https://budget.gov.au/content/04-tax-reform.htm
• “Federal Budget 2026-27: Negative Gearing”: Pitcher Partners confirms the 7:30pm, 12 May 2026 cut-off, the 1 July 2027 start, the transitional window to 30 June 2027, and the grandfathering of existing owners. https://www.pitcher.com.au/insights/federal-budget-2026-27-negative-gearing/
• “Federal Budget Analysis 2026: Negative Gearing”: William Buck confirms established-property negative gearing ends from 1 July 2027, that grandfathered properties keep it until sold, and that eligible new builds retain negative gearing and the 50 per cent CGT discount. https://williambuck.com/tools/federal-budget-2026/negative-gearing/

Related Reading

• Positive cashflow vs negative gearing after 2026: which strategy holds up?
• Negative gearing is changing: what is the positive-cashflow alternative?
• What is positive geared property, and how does it work?
• Is co-living a good fit for an SMSF in 2026?
• Class 1B certification: an investor’s risk guide

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. Any tax or regulatory measures described are announced rather than enacted and are subject to change.