The New Negative Gearing Law: What Does It Mean for Property Borrowers?

Australia's negative gearing rules are changing, and for property investors, this is more than just a tax update.

The changes could influence what type of property investors buy, how much cash flow they need and how they approach their next investment loan.

From 1 July 2027, negative gearing for residential property will generally be limited to eligible new builds. Properties already held before 7:30 pm AEST on 12 May 2026 are protected under grandfathering arrangements.

So, if you already own an investment property, are planning to buy another one or are considering your first property investment, what does the new negative gearing law actually mean for you as a borrower?

Let's break it down without the tax jargon.

First, What Is Negative Gearing?

A property is negatively geared when the deductible costs of owning the investment are greater than the income it produces.

For example, your property may earn rental income, but your eligible interest costs, property management fees, maintenance and other deductible expenses may be higher.

Under the existing system, an eligible investor can generally use that rental loss to reduce taxable income from other sources, including salary.

The new law changes where that benefit will apply for future residential property purchases.

What Is Changing From 1 July 2027?

The Government is directing negative gearing benefits towards housing that adds to Australia's supply.

Already Own an Investment Property?

If you held the property before 7:30 pm AEST on 12 May 2026, the existing negative gearing treatment can continue while you hold it.

This means current investors are not suddenly losing the ability to negatively gear an existing investment property because of the new law.

Buying an Established Property After 12 May 2026?

This is where things change.

From the 2027-28 income year, losses associated with affected established residential investment properties purchased after the cut-off will generally no longer be deductible against unrelated income such as salary.

That does not mean the losses disappear.

They can generally be used against residential property income, including eligible capital gains, with excess losses carried forward for future years.

Buying an Eligible New Build?

Eligible new-build investment properties can continue to access negative gearing under the new system.

The aim is straightforward: if tax concessions are going to support property investment, the Government wants more of that investment directed towards creating additional homes.

Why This Matters to Borrowers, Not Just Accountants

It would be easy to see negative gearing as purely a tax issue.

For property borrowers, however, the bigger issue is cash flow.

Imagine an investment property runs at a taxable loss of $14,810 for the year.

Treasury's modelling shows that under the current arrangements, a person earning $80,000 could receive a tax benefit worth approximately $4,761 from that deduction. For someone earning $210,000, the value could be around $6,961.

Under the new arrangements for an affected established property, that $14,810 loss would instead be carried forward rather than immediately reducing tax on salary.

That can change how much of the property's shortfall the investor needs to fund from their own cash flow.

For borrowers already managing large mortgage repayments, that difference matters.

Could the New Law Reduce Your Borrowing Capacity?

Not automatically.

Negative gearing tax rules and lender serviceability calculations are two different things.

A lender will still assess your application using its own policies around:

• employment and income
• existing home and investment loans
• expected rental income
• credit card limits
• personal and car loans
• household expenses
• dependants
• deposit and available equity
• overall repayment capacity

However, the tax changes may influence the financial position behind your borrowing strategy.

Your Holding Costs Could Feel Different

If you purchase an affected established investment property and cannot immediately offset its rental loss against salary, you may need greater personal cash flow to comfortably hold that property.

This could become particularly important for investors with multiple mortgages.

Your Next Property Choice May Change

An investor comparing a new build and an established property may now need to include future tax treatment when modelling the two options.

That does not mean the new build automatically wins.

It means the comparison has another important layer.

New Builds Are Also Treated Differently Under Lending Rules

There is another 2026 change investors should know about.

APRA introduced a new debt-to-income lending limit from February 2026. Banks can generally have no more than 20% of new investor mortgage lending at a debt-to-income ratio of six times income or higher.

However, loans used for the purchase or construction of new dwellings are exempt from this particular DTI limit.

This exemption does not guarantee loan approval or mean borrowers can take on unlimited debt.

Banks still need to assess whether you can afford the loan. APRA has also maintained its 3 percentage point mortgage serviceability buffer.

But when combined with the negative gearing changes, there is a clear policy direction emerging: new housing supply is receiving different treatment from existing housing.

Should Investors Now Borrow to Buy New Builds?

This is where borrowers need to avoid making a tax-driven decision.

A tax benefit should never be the main reason to take out a large mortgage.

A new property can offer advantages such as:

Potential Negative Gearing Benefits

Eligible new builds can continue to access negative gearing after July 2027.

Lower Early Maintenance

Newer appliances, plumbing, electrical systems and fixtures may reduce major maintenance costs during the early years.

Modern Rental Appeal

Energy efficiency, modern layouts, heating and cooling and newer facilities may appeal to tenants.

But new builds can also carry risks.

You could pay a premium because the property is new. Some developments may have large numbers of similar properties competing for tenants. Off-the-plan buyers may also face valuation and finance risks between signing the contract and settlement.

The property still needs to make sense without the tax benefit.

What About Borrowers Who Prefer Established Properties?

Established investment property is not disappearing.

For many investors, an established property may still offer better value because of its location, land component, purchase price or renovation potential.

The key change is that investors may need to think differently about after-tax holding costs.

For example, an established property with strong rental yield and relatively low debt may still produce better cash flow than a more expensive new property, even if the new property receives more favourable tax treatment.

This is why comparing properties based only on negative gearing can be misleading.

You need to consider:

• purchase price
• deposit required
• interest rate
• expected rent
• vacancy risk
• maintenance
• council and strata costs
• tax treatment
• available depreciation
• future property supply
• long-term investment potential

What Should Property Borrowers Do Before 1 July 2027?

There is no need to rush into buying an investment property simply because the rules are changing.

Instead, use the transition period to review your position properly.

If you are considering another investment, understand:

• your current borrowing capacity
• usable equity
• existing debt-to-income position
• expected investment repayments
• likely rental income
• cash-flow buffer
• whether you are considering new or established property
• how the tax changes may affect your personal circumstances

A mortgage broker can help with the lending side, while a qualified accountant or tax adviser can explain how the new tax rules apply to you.

Conclusion: Negative Gearing Is Changing, Your Borrowing Strategy May Need to Change Too

The new negative gearing law does not mean property investing is ending, and it does not mean every investor should switch to new builds.

What it does mean is that property type, tax treatment and borrowing strategy are becoming more closely connected.

Existing investment properties held before the May 2026 cut-off are protected. Eligible new builds can continue to access negative gearing, while affected established properties purchased after the cut-off will face different rules from July 2027.

For borrowers, the practical issue is cash flow.

Before taking on another investment mortgage, understand what the property will cost to hold, how much you can comfortably borrow and whether your strategy still works under the new rules.