Negative gearing on established property still exists, it’s just different

Investing in established property as we knew it has completely changed. On 12 May 2026, the Labour government announced some proposed changes to both negative gearing and capital gains discounts, and since then the proposed changes have been legislated.

Negative gearing benefits for those who either owned, (or had entered into a contract) before 7.30pm on the 12th of May 2026 remain in place. The negative gearing benefits have been grandfathered for this cohort. For any investors who purchase an established property between now and 1 July 2027, the same negative gearing benefits will be available to them for the financial year 2026/2027 only. Claiming the losses against total income is available for any investors who purchase a brand new property however.

What a lot of people have not noted, however is the change to negative gearing on established property. Negative gearing has not been completely removed for established property purchases going forward. It has been changed. For all properties purchased prior to Budget Night, from 1 July 2027, losses will only be deductible against the rental income, (as opposed to all income.) And the losses can be carried forward, year after year.

What that means is that investors who sustain losses, (almost everyone for at least the first few years of an acquisition period), will be able to carry their losses forward, and offset the tax that they would pay on their positively geared rental income in future years.

It’s not great news for new investors, but it does make a difference for established investors who have held property(ies) for a longer period and currently have a cashflow-positive portfolio. In other words, a multi-property investor with a positively geared property can now minimise the tax that they will pay on their rental income by offsetting it with the losses they sustain with a new purchase.

It doesn’t seem very fair, given a multi-property portfolio investor can still purchase and likely receive the tax offsets immediately.

However, these are the new rules.

There is another opportunity for investors to still achieve negative gearing benefits on established property, and many aren’t aware of this.

Properties purchased before Budget Night have negative gearing benefits grandfathered. This includes owner-occupied properties that are later converted to an investment property. My co-host on The Property Trio, Dave Johnston penned a great episode about this topic.

While the new rules restrict negative gearing for established properties purchased after 12 May 2026, homeowners who purchased their principal place of residence before that date may still retain access to the previous tax treatment if they later convert that home into an investment property.

This change may encourage more homeowners to consider an “upgrade and retain” approach rather than selling their existing home when purchasing their next one. Others may explore rent-vesting, (renting where they wish to live while retaining ownership of their original property as an investment).

However, this opportunity is not simply about tax. Mortgage structure plays an equally important role. Decisions made today, such as reducing loan principal or selecting the wrong repayment strategy, may permanently affect the amount of deductible debt available if the property becomes an investment in the future.

Of course, no strategy suits everyone. Cash flow, borrowing capacity, future plans and taxation outcomes all deserve careful consideration. Seeking advice from a strategic mortgage broker alongside a qualified tax professional can help homeowners understand whether this approach aligns with their circumstances.

What is for certain….. the changes to negative gearing have rattled our market, but opportunities to invest in established property do still exist. Albeit, with some challenges and considerations.