Understanding the New Carry-Forward Tax Rules for Property Investors!

July has been marked by big changes to property taxation, here is what you need to know!

The Federal Government has announced changes to the tax treatment of negatively geared residential investment properties. While the rules are changing, there is one important takeaway for investors:

Rental losses are not disappearing, rather they can still provide a tax benefit, but in some cases that benefit may be received later rather than immediately.

What’s Changing?

For established residential properties purchased after 7:30pm (AEST) on 12 May 2026, rental losses will generally no longer be able to be offset against your salary or other personal income from 1 July 2027.

Instead, these losses will be carried forward and may be used against:

• Future rental profits from residential property; and/or
• Future capital gains from residential property.

What Stays the Same?

The changes generally do not affect:

✅ Existing investment properties purchased before 12 May 2026 (grandfathered).

✅ New residential properties purchased after 12 May 2026.

✅ Commercial property investments.

Understanding the Difference

Previous Rules

If you earned $180,000 per year and your investment property made a $20,000 loss:

• Salary: $180,000
• Less rental loss: ($20,000)
• Taxable income: $160,000

This could provide an immediate tax saving depending on your marginal tax rate.

New Rules

• Salary: $180,000
• Rental loss: $20,000
• Taxable income remains: $180,000

The $20,000 loss is carried forward and can potentially be used in future years.

How Does the Carry-Forward Work?

Let’s say your investment property records a $20,000 rental loss this year.

Several years later, the property starts generating a $15,000 annual profit.

Under the new rules:

• Carried-forward loss: $20,000
• Future rental profit: $15,000
• Taxable rental income: $0
• Remaining carried-forward loss: $5,000

Alternatively, if you later sell the property and make a capital gain, the carried-forward losses may potentially reduce the taxable gain, subject to the final legislation and ATO guidance.

What Does This Mean for Investors?

The biggest impact is cash flow and timing.

Under the previous rules, many investors received an immediate tax benefit that helped offset the cost of holding a negatively geared property.

Under the new rules, some investors may need to carry the property’s cash shortfall for longer before receiving the tax benefit.

This makes it even more important to consider:

• The property’s long-term cash flow.
• Rental yield and future growth prospects.
• Whether a new build or established property better suits your investment strategy.
• Having a lending structure that supports your investment goals.

The Good News!

Property investing remains a powerful wealth-building strategy for many Australians. These changes simply mean that investors may need to place a greater focus on:

✓ Sustainable cash flow
✓ Long-term investment planning
✓ Choosing the right property and loan structure
✓ Understanding the tax implications before purchasing

Thinking About Your Next Investment?

Whether you’re buying your first investment property, expanding your portfolio or reviewing your existing lending arrangements, the team at Loan Nerds is here to help you navigate the changing landscape.

Let’s build an investment strategy that works for your goals, today and into the future.

📞 02 9188 9398
📧 hello@loan-nerds.com.au
🌐 www.loan-nerds.com.au

This article contains general information only and does not constitute tax, legal or financial advice. The proposed legislation is subject to passage through Parliament and final ATO guidance. Please seek advice from your accountant or tax adviser regarding your personal circumstances.