Australians who buy established homes after budget night will no longer be able to use negative gearing on those properties under a sweeping change in the Australian federal budget. The rule will leave negative gearing available only for newly built homes from that night onward, while existing investors who already negative gear established properties can keep doing so.

The change matters now because it redraws the tax case for property investment immediately for anyone looking at an existing home. Investors who purchase established homes from budget night on will not be able to offset their losses against taxable income, although those who already hold negatively geared established properties will be grandfathered in and can continue under the current arrangement. If they buy additional properties, the new rules will apply to those new purchases.

There is also a hard edge to the transition. Investors who buy established properties after the 2026 budget night will still be able to negative gear them until 1 July 2027, but after that date the temporary window closes. That gives the market a short runway before the new system fully bites for later purchases.

The budget also rewrites the way capital gains are taxed for property investors. Since 1999, investors have enjoyed a 50 per cent capital gains tax discount on profits from properties held for more than 12 months. Australia will now return to its pre-1999 approach of indexing capital gains against inflation instead. In one example, a property bought for $500,000 and sold 10 years later for $1 million would leave the owner with a $500,000 gain; under the old 50 per cent discount, tax would be paid on $250,000 of that gain, while under the new inflation-indexing system with 20 per cent inflation over the decade, the taxable gain would be $400,000.

The government says the changes are designed to make home ownership more affordable and accessible for young Australians by reducing the incentive for investors to compete for the same homes. It also argues that limiting negative gearing to new builds will encourage more construction of new housing. Together with the shift away from the post-1999 capital gains tax discount, the measures mark a major reset of the tax settings that have shaped property investment for a generation.