KEY TAKEAWAYS: From 1 July 2027, losses from eligible established residential properties will generally no longer be able to offset salary and other non-property income. Investors can continue to access negative gearing on eligible new-build properties because the reforms are designed to encourage new housing supply. However, not every “new” or renovated property qualifies Investment properties held before 7:30 am AEST on 12 May 2026 are generally grandfathered under the existing negative-gearing rules, subject to the legislation’s requirements What is Changing From 1 July 2027, Who is Protected, and Why New Builds are Different If you own property in NSW — or you are thinking about buying an investment property — the rules around negative gearing are changing. The Federal Government has legislated changes that will restrict negative gearing on established residential properties purchased after 12 May 2026. At the same time, investors buying eligible new-build properties will continue to have access to negative gearing. For NSW homeowners, the key message is simple: the rules have not abolished negative gearing, but they will change which residential properties can generate losses that can be offset against your salary and other non-property income. Here is what the changes mean in practical terms. What is negative gearing? Negative gearing occurs when the costs of owning an investment property — such as interest on the investment loan, property management, repairs and other deductible expenses — are greater than the rental income you receive. Under the current rules, the resulting rental loss can generally be deducted against other taxable income, such as salary and wages. For example, if your investment property produces a $15,000 tax loss and you have employment income, that loss may currently reduce your taxable income. From 1 July 2027, that treatment will change for certain established residential properties. What is changing from 1 July 2027? From 1 July 2027, negative gearing for residential property will be limited to eligible new builds. If you purchase an established residential property after the 12 May 2026 announcement, you will still be able to claim rental losses — but those losses will generally only be able to offset income from residential property, including residential capital gains. The Big Exception: Eligible New Builds This is one of the most important parts of the reform. Investors who purchase eligible new-build residential property will continue to be able to negatively gear the property after 1 July 2027. This means an eligible new-build investment can still generate a rental loss that is used to reduce other taxable income, including salary and wages. The Government’s stated intention is to direct tax benefits towards investment that adds to Australia’s housing supply. What counts as a new build? The rules are aimed at properties that genuinely add to housing supply. Examples include: A dwelling constructed on vacant land Building a new house, townhouse or other qualifying residential dwelling on land that previously did not contain that dwelling can qualify. Replacing existing housing with more dwellings For example, an existing property may be demolished and replaced with multiple new dwellings, increasing the number of homes available. This is an important distinction. A project that genuinely increases the number of dwellings may qualify, while simply replacing an old house with another house generally does not. What does NOT necessarily qualify? Not every property advertised as “new” will automatically qualify. The legislation specifically excludes situations where the project does not genuinely increase housing supply. This can include: A straightforward knock-down-and-rebuild that replaces one dwelling with one dwelling Substantial renovations that do not increase the number of dwellings An established property that has simply been renovated A property that has previously been sold, subject to limited rules for builder-held stock So, if you are buying a property because you expect it to qualify for the new-build negative-gearing treatment, it is important to confirm its eligibility rather than relying solely on the words “brand new” in a property advertisement. There is an important rule for subsequent buyers There is another detail homeowners and investors should understand. A new dwelling generally cannot have previously been sold and still retain the new-build treatment for a subsequent purchaser. There is a limited exception where the property was first owned by the builder and was not occupied for more than 12 months. This means that simply buying a property that was built recently does not necessarily mean you will receive the new-build negative-gearing treatment. Newly constructed does not always mean eligible. The property’s history matters. What about properties you already own? This is where the rules may be much less disruptive for existing property owners. If you owned an investment property before 7:30 pm AEST on 12 May 2026, it is grandfathered under the negative-gearing changes. That means you can continue to negatively gear that property in future years under the existing rules until you sell it. The transitional rules also cover properties where a contract had been entered into before the announcement but settlement had not yet occurred. What if you bought an established property after 12 May 2026? There is a transition period. An established property purchased after the announcement but before 1 July 2027 can continue to be negatively geared under the existing rules during that period. However, from 1 July 2027, the new restrictions apply. In other words: Bought before 12 May 2026: Existing negative-gearing treatment is grandfathered. Bought between 12 May 2026 and 30 June 2027: Existing treatment continues until 30 June 2027, then the new restrictions apply. Bought from 1 July 2027: An established residential property will generally no longer allow rental losses to be offset against salary and other non-residential income. Eligible new build: Negative gearing continues to be available. What other properties are outside the changes? The reform is specifically focused on residential property. Commercial property and other asset classes, such as shares, remain subject to their existing negative-gearing arrangements. There are also targeted exclusions and exemptions for certain structures and housing programs, including: Widely held trusts Superannuation funds, including SMSFs Eligible build-to-rent developments Certain private investors supporting government housing programs Social and affordable housing arrangements covered by the rules These areas can have their own eligibility requirements, so they should not be treated as automatic exemptions for every investor. What does this mean for NSW homeowners? For the average NSW homeowner, the changes are unlikely to affect your principal place of residence directly. You don’t normally negatively gear the home you live in because you are not receiving rental income from it and the expenses of your private home are generally not deductible. The changes become much more relevant if you: Own an investment property Are considering buying your first investment property Plan to convert your current home into an investment property Are considering a new-build investment Are looking at a knock-down-rebuild project Are considering buying an established property before or after 1 July 2027 For these homeowners, the date you buy, the type of property you buy and whether the property genuinely adds to housing supply can make a significant difference to the future tax treatment. Is buying a new build now automatically better? For the average NSW homeowner, the changes are unlikely to affect your principal place of residence directly. You don’t normally negatively gear the home you live in because you are not receiving rental income from it and the expenses of your private home are generally not deductible. The changes become much more relevant if you: Own an investment property Are considering buying your first investment property Plan to convert your current home into an investment property Are considering a new-build investment Are looking at a knock-down-rebuild project Are considering buying an established property before or after 1 July 2027 For these homeowners, the date you buy, the type of property you buy and whether the property genuinely adds to housing supply can make a significant difference to the future tax treatment. The bottom line for NSW homeowners The new negative-gearing rules do not mean negative gearing is disappearing. Instead, from 1 July 2027, the tax advantage will increasingly depend on the type of property you own. If you already owned an investment property before the 12 May 2026 announcement, you are generally protected by the grandfathering provisions. If you are buying an established residential property after that date, you need to understand that future rental losses will generally no longer be available to reduce your salary or other non-residential income. If you are considering a new-build investment, the rules are more favourable because eligible new builds can continue to receive the full negative-gearing treatment. But the definition of “new build” matters. A renovated property or a simple knock-down-rebuild is not automatically eligible. Before you buy If you’re a NSW homeowner considering an investment property, ask three questions before signing a contract: When am I buying the property? Is it genuinely an eligible new build? How will the property perform without relying on a tax deduction? Getting these answers right could make a significant difference to your investment strategy after 1 July 2027. This article is general information only and is not financial, tax or legal advice. Tax outcomes can vary depending on your ownership structure, property history and individual circumstances. Speak with a qualified tax adviser or accountant before making an investment decision. ABOUT KAY VITOGIANNIS: Kay joined the Coutts team in May 2021, working as a Licensed Conveyancer within our Property & Conveyancing team in Narellan. Kay has over 20 years of experience in the Legal industry. She began her journey in CBD Conveyancing firms as a secretary and attained her Advanced Diploma in Conveyancing in December 2010. For further information,n please don’t hesitate to contact: Kay Vitogiannis Licensed Conveyancer info@couttslegal.com.au 1300 268 887 Contact Coutts today. This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you. Tags:Co-authored by Kay Vitogiannis Contact Us