If you bought an established investment property after 7:30pm AEST on 12 May 2026, your rental losses can still reduce the tax on your wages, but only until 30 June 2027. From 1 July 2027, the law quarantines net rental losses on those properties unless they qualify as new builds. With that date nine months away, investors who bought in the past four months are starting to recalculate their cash flow.

The line in the sand: 7:30pm on Budget night

The negative gearing changes are law. They are in Schedule 2 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026.

Grandfathering is tied to the moment the Budget was announced. The Budget papers state: "Existing arrangements will remain unchanged for all properties held before Budget night." Properties held at 7:30pm AEST on 12 May 2026 keep the current treatment indefinitely.

Anyone who acquired an established dwelling after that moment falls under the new rules. Exactly when a purchase counts as an acquisition can be technical, so buyers who exchanged contracts around Budget night may want to confirm their position with a registered tax agent.

The interim window: deductions until 30 June 2027

Post-Budget purchases are not cut off straight away. The explainer says properties bought between the announcement and 30 June 2027 "may be negatively geared during this period, but not from 1 July 2027".

That means net rental losses for the rest of 2025–26 and the whole 2026–27 income year can generally be deducted against other income under the existing rules, subject to the usual requirements.

The change bites from the 2027–28 income year onwards.

For many post-Budget buyers, that means the 2025–26 return being lodged this tax time may be the first to include rental losses, and the 2026–27 return the last in which those losses can be offset against a salary.

What quarantining means from 1 July 2027

Quarantined losses are not lost. Under the Act, net rental losses on affected properties can be deducted only against residential property income and residential capital gains. Any unused amount is carried forward to later years.

What investors lose is the ability to use those losses to reduce tax on wages, business income or other investments.

The Budget explainer models this with Yoonseo, who earns $100,000 and buys an existing property for $519,000. Over five years she accumulates $22,879 in carried-forward losses, which she can use later. Across the whole investment, the explainer estimates she pays $186 more in nominal tax than under the old rules.

That small figure reflects timing: the deductions are delayed rather than denied. The cash-flow effect in the early years, when losses are largest, may be more noticeable.

Consider a simplified, hypothetical example that ignores the Medicare levy. Mia earns a $120,000 salary, which keeps her in the 30% tax bracket, and bought an established unit in June 2026. In 2026–27 the unit makes a net rental loss of $10,000. She can deduct that against her salary, reducing her tax by about $3,000.

In 2027–28 the unit makes another $10,000 net loss. This time it cannot reduce the tax on her salary. The $10,000 is carried forward.

In 2029–30, after rent increases, the unit makes a net rental profit of $4,000. Mia can apply $4,000 of her carried-forward losses, reducing that property income to nil and leaving $6,000 to carry forward.

If she later sells at a capital gain, remaining losses can also be applied against that residential capital gain.

The exceptions worth checking

New builds are exempt. Investors in new residential dwellings can still deduct losses against other income. Under Treasury's tranche 2 draft rules, a property would generally be "new" if it genuinely adds to supply and was acquired within 24 months of a certificate of occupancy. That draft is not yet law.

Complying superannuation funds, including SMSFs, and widely held unit trusts sit outside the quarantine rule under the Act. However, SMSFs have been banned from entering new limited recourse borrowing arrangements to buy residential property since 10 August 2026.

The draft rules would also exempt some affordable and social housing, NDIS housing, public housing and build-to-rent developments.

Another draft measure is relevant to home buyers. If you bought a home after Budget night, live in it and later rent it out, the draft would preserve existing negative gearing and CGT treatment when an eligible main residence is first used to produce income. Again, this is proposed, not enacted.

The bigger picture: modelling and capital gains

The government's case is that the old settings favoured investors over first home buyers. Treasury modelling in the Budget explainer estimates the combined changes could add "around 75,000 additional owner-occupiers over the next decade".

The same modelling suggests prices would "grow by around 2 per cent less over a couple years", with a rent increase of "less than $2 per week". Those are estimates, and industry groups such as the Property Council have disputed the supply effects.

For post-Budget buyers, the CGT changes also matter. They start on 1 July 2027. Gains accruing from that date will be calculated using cost-base indexation, with a 30% minimum tax for resident individuals, rather than the 50% discount.

Assets held on 1 July 2027 are deemed sold and reacquired at market value, so growth before that date keeps the discount when the property is eventually sold.

What to watch before July 2027

The tranche 2 exposure draft closed for comment on 21 August 2026, and the Tax Reform No. 3 Bill had not been introduced as of late September.

For post-Budget buyers, the key questions are whether the final new-build and main residence rules apply to them, and how carried-forward losses will be tracked in tax returns from 2027–28.

Keeping clear records of purchase dates, contract details and annual rental results may make those calculations easier. A registered tax agent may help investors assess how the rules apply to their own situation.