Top Strategies to Understand Negative Gearing in 2026

Negative gearing is changing from July 2027, and if you're considering an investment property in Wentworthville, the timing of your purchase will directly affect how much tax relief you can claim.

Under current rules, you can offset a rental loss against your salary or other income. From 1 July 2027, properties purchased after 12 May 2026 will only let you offset rental losses against other rental income or carry them forward, unless the property qualifies as an eligible new build. Properties you already own or have under contract before that date are unaffected.

What Negative Gearing Means for Property Investors

Negative gearing occurs when your rental income falls short of your property expenses, including loan interest, and you use that loss to reduce your taxable income. The interest on your investment loan is typically the largest deductible expense, especially in the first years when repayments are mostly interest.

Consider a buyer who purchases a two-bedroom unit in Wentworthville at the suburb's current median with an 80 per cent loan to value ratio on an interest-only term. Rental income might cover roughly two-thirds of the annual interest cost, leaving a shortfall before other expenses like body corporate fees, council rates and property management. Under the existing framework, that shortfall reduces assessable income. Under the new rules applying from mid-2027, it can only be used against other residential rental income or carried forward.

How the July 2027 Changes Affect Your Borrowing

Properties purchased after 7.30pm on 12 May 2026 but settled before 1 July 2027 can still be negatively geared under current rules until 30 June 2027. After that date, the quarantine applies. Properties under contract before 12 May 2026 retain full negative gearing benefits indefinitely.

This means your purchase timeline determines the tax treatment for the life of the investment. If you're buying an established unit or house in Wentworthville now, you'll be subject to the new quarantine rules unless the property qualifies as an eligible new build. Eligible new builds include dwellings constructed on previously vacant land and properties where the number of dwellings increases, such as a house subdivided into two townhouses. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify, and a new build lived in for more than 12 months before being sold loses its status for the next investor.

Interest-Only Terms and Rental Income Calculations

Many investors choose interest-only repayments to minimise monthly outgoings and maximise the deductible portion of the loan. On a principal and interest loan, only the interest component is claimable. On an interest-only term, the entire repayment is deductible, which increases the size of the rental loss.

Wentworthville sits close to Parramatta CBD and Westmead employment hubs, and rental demand from families and commuters has historically kept vacancy rates low. A stable tenant reduces the risk of periods without rental income, which directly affects your ability to service the loan and claim deductions. Lenders apply a rental income discount when calculating serviceability, typically around 20 per cent, to account for vacancy and maintenance periods. Your broker will model repayments at a buffer of three percentage points above the product rate, as required under current serviceability standards.

Loan Structuring for Quarantined Losses

If your rental loss will be quarantined under the new rules, structuring your borrowing to limit that loss becomes more relevant. A lower investment loan amount reduces interest costs, which in turn reduces the annual shortfall. Increasing your deposit to 80 per cent loan to value ratio or below also removes the need for Lenders Mortgage Insurance, lowering upfront costs and improving cash flow.

In a scenario where you hold multiple properties, quarantined losses from one property can be offset against rental income from another. This makes portfolio growth more tax-efficient than holding a single negatively geared property in isolation. If you're planning to add to your portfolio over time, the ability to offset losses across properties becomes a key part of your long-term strategy.

Eligible New Builds and Negative Gearing Access

New residential developments in and around Wentworthville, particularly along Station Street near the train station, may qualify as eligible new builds if they increase the number of dwellings on the site. Purchasing an eligible new build allows you to continue offsetting rental losses against wage income under the same rules that apply to properties purchased before 12 May 2026.

The trade-off is often a higher purchase price and a smaller pool of tenants willing to pay a premium for a new property. New builds also tend to attract lower depreciation deductions than older properties with plant and equipment installed before recent changes to depreciation rules. Your accountant can model whether the retained negative gearing benefit outweighs the higher entry cost and lower depreciation.

Refinancing Investment Property After the Rule Change

If you own a property purchased before 12 May 2026, refinancing your loan does not change the tax treatment. The grandfathering applies to the property and the date of acquisition, not the loan product. You can switch lenders, move from variable to fixed, or release equity without losing access to negative gearing under the current rules.

For properties purchased after that date, refinancing also has no effect on the quarantine. The tax treatment is locked in at the time of purchase. Releasing equity to fund another investment property creates a new loan, and the deductibility of interest on that new borrowing depends on what the funds are used for. Interest on funds used to acquire or hold an income-producing asset remains deductible. Interest on funds used for private purposes is not.

Capital Gains Tax Considerations from July 2027

The same legislation that quarantines rental losses also changes how capital gains are taxed. From 1 July 2027, gains accruing after that date on properties purchased after 12 May 2026 will be taxed using cost base indexation and a minimum 30 per cent rate on real gains, replacing the current 50 per cent discount. Gains accrued before 1 July 2027 remain under the existing discount method.

Eligible new builds retain an election between the discount and the new indexation approach, giving investors flexibility depending on their circumstances at the time of sale. The main residence exemption is unchanged, and widely held unit trusts are excluded from the negative gearing quarantine, meaning most managed investment structures are unaffected.

If you're weighing the long-term return on a Wentworthville property, both the annual tax treatment and the eventual sale outcome need to be modelled together. A property that generates a smaller tax benefit each year but grows steadily in value may still outperform alternatives depending on your income, holding period and portfolio structure.

We work with investors across Western Sydney who are making these decisions now, before the rules take effect. The legislation has been passed, the start date is confirmed, and the exemptions are defined. Call one of our team or book an appointment at a time that works for you, and we'll walk through your numbers, your timeline and the loan options that fit your situation.

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