Negative Gearing Changes 2026: Why New Builds Win Now

If you're weighing up an investment property purchase in 2026, the tax rules just changed in a way that makes brand-new property significantly more attractive than an established home, and the difference isn't marginal. The 2026-27 Federal Budget has rewritten negative gearing and capital gains tax (CGT) for residential property, and these measures are now law, replacing the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains. New builds have been carved out and protected. Established homes have not.

Here's exactly what changed, why new builds now have a real tax advantage, and what to check before you buy.

What's changing for established property

Negative gearing for established residential properties will be abolished from 1 July 2027 for properties purchased after 7:30pm on 12 May 2026. In practice, that means:

• Investors affected by the changes will no longer be able to offset rental losses against salary or other personal income. Instead, losses can only be offset against residential rental income or future capital gains from rental properties.
• Those losses aren't lost forever, they're quarantined. Excess rental losses may be carried forward to future years.
• Existing property owners, including those already under contract before the announcement, are grandfathered and can continue to access negative gearing under the current rules. So if you already own an investment property, or exchanged contracts before 7:30pm on 12 May 2026, nothing changes for you on that asset until you sell it.

On top of that, the CGT discount itself is being overhauled. This reform means investors will only pay tax on their real capital gain, restoring the original intent of the CGT arrangements, and the CGT reforms will only apply to gains arising after 1 July 2027. Practically, the current 50% CGT discount is being largely replaced by an inflation indexation system, where the original purchase price is increased in line with inflation before calculating the taxable gain, meaning investors generally only receive tax relief for the portion of the gain attributable to inflation. On top of that, many capital gains may become subject to a minimum effective 30% tax rate regardless of an investor's normal marginal tax rate.

For an investor who bought an established property after Budget night, that's a double hit: no more offsetting rental losses against wages, and a smaller, more complex discount on any eventual sale.

Why new builds are the exception

This is the part that matters most if you're buying now. Eligible new build residential properties remain exempt from these changes. For these properties, both negative gearing and the existing capital gains tax discount of 50% will still be available.

Even better, new-build investors aren't locked into the old regime either, they get to pick whichever works out best. Investors in new builds will be able to choose the 50 per cent CGT discount or the new arrangements. That optionality alone is worth having: if inflation is low and your holding period is long, indexation might win; if not, you keep the simple 50% discount. Established-property investors don't get that choice after 1 July 2027, they're pushed into the new system by default.

The government's own modelling makes the gap explicit. In one worked example from the Budget papers, an investor who bought an established property paid several hundred dollars more tax under the new rules, and the paper notes plainly: had she bought a new build property, she would not pay additional tax as negative gearing and the existing capital gains tax discount would still be available for that property.

The policy intent is spelled out too: the Budget indicates that this approach is intended to maintain incentives for investment in new housing. The government wants investor capital flowing into new supply, not competing with first-home buyers for existing stock, and it's used the tax system to make that happen.

What actually counts as a "new build"

This is worth getting right before you sign a contract, because the definition is specific. Properties that qualify include:

• A newly constructed apartment bought off-the-plan.
• A duplex constructed through a knock-down rebuild replacing a single, free-standing house, i.e. a net increase in the number of residential properties.
• Any residential construction on previously vacant land.

Properties that do not qualify as new builds include:

• An established property that has recently been extended to add additional bedrooms.
• A free-standing house constructed through a knock-down rebuild replacing an older, smaller free-standing house.
• A granny flat built adjacent to an established property that is not eligible for negative gearing.
• A newly built property which is occupied for more than 12 months before being sold to a subsequent investor.

That last point matters if you're eyeing a display home or a near-completion project: buy it too long after practical completion and you can slip outside the "new build" definition entirely.

A few other categories are also carved out of the changes altogether: properties in widely held trusts and superannuation funds are exempt, in addition to targeted exemptions for build-to-rent developments and private investors supporting government housing programs.

Who this hits hardest, and who it doesn't

The removal of negative gearing on established property doesn't affect everyone equally. The effect is largest for investors with high marginal tax rates, high leverage, low rental yields and high interest expenses, that is, the investors most likely to have been negatively geared under the previous rules. In cash-flow terms, CBA estimates the removal of negative gearing is equivalent to roughly a 90-155 basis point increase in investor mortgage rates in immediate cash flow terms for those buying established property from here.

There's also a market-wide effect to factor into timing. CBA expects house prices to be about 3% lower than they otherwise would have been, with dwelling price growth now forecast at 3% to December 2026, down from 5%. That's a headwind for established property values generally, while new-build demand is being actively supported by the tax settings and by measures like the government's new $2bn Local Infrastructure Fund aimed at enabling more housing supply.

The practical case for buying new now

Putting it together, a new-build purchase today gives you:

1. Negative gearing intact. Rental losses can still be offset against your salary or other income, unlike an established property bought after 7:30pm on 12 May 2026.
2. A choice at sale time. You can apply the old 50% CGT discount or the new indexation and minimum-tax regime, whichever produces the better outcome for you.
3. A tailwind, not a headwind. Investor demand is being deliberately redirected toward new supply, and retaining negative gearing for new dwellings should redirect some investor demand from established properties toward new builds, supporting construction activity, particularly for apartments where investor pre-sales are important.
4. No rush, but no reason to wait either. If you already own established property, you're grandfathered and there's nothing to fix today. But if you're deciding what to buy next, the settings now clearly favour new stock over existing stock.

What to check before you buy off-the-plan

New builds aren't a free lunch. Construction costs remain elevated, and elevated construction costs could make new housing less attractive to investors and reduce the availability of supply, with the Budget noting that the Middle East conflict has increased costs for key inputs including fuel and plastics. Before signing:

• Confirm the property genuinely meets the ATO's "new build" definition, not just how the developer markets it.
• Run the numbers on build cost versus expected rent and long-term growth, not just the tax benefit.
• Check the settlement and occupation timeline against the 12-month "first sale" rule.
• Get a depreciation schedule sorted early, it remains one of the most valuable deductions available on new stock.

If you're weighing up a specific off-the-plan project or knock-down-rebuild against an established home in the same suburb, our guide to evaluating off-the-plan investment property walks through the due diligence checklist in more detail.

Priorities

1. Confirm grandfathering first. If you already own an investment property or exchanged contracts before 7:30pm AEST on 12 May 2026, you're unaffected, don't make any rushed decisions based on this reform.
2. If you're buying now, favour new builds. They retain full negative gearing and a choice of CGT treatment; established properties purchased after Budget night lose both.
3. Verify the "new build" test before contracting. Off-the-plan apartments, net-new duplexes and construction on vacant land qualify; renovations, like-for-like rebuilds, granny flats and stock held over 12 months before resale do not.
4. Stress-test the build cost. Elevated construction and materials costs can erode the tax advantage, model the numbers before committing, don't buy on tax benefit alone.
5. Get a depreciation schedule and CGT valuation organised at settlement, both remain central to maximising the after-tax return on new stock under the post-2027 rules.