Top tips to lock in negative gearing before 2027

The rule change hits contracts signed after May 2026

Any residential investment property you contract to buy after 7:30pm on 12 May 2026 will be subject to quarantine from 1 July 2027 unless it qualifies as an eligible new build. Losses on those properties can only offset other residential rental income or be carried forward, not deducted against your wage or business income. Properties under contract before that cut-off, including those settling after 1 July 2027, retain full negative gearing under existing rules until you sell.

Albert Park sits in a rare pocket where rental yields and capital growth have historically moved in step. The suburb's median one-bedroom apartment rents at roughly 4.2 per cent gross yield, while two-bedroom terraces and townhouses sit closer to 3.6 per cent. That spread matters when you are structuring an investment loan to maximise deductions in the final twelve months before quarantine becomes law.

Interest-only structures amplify deductions now

Interest-only repayments on an investment loan mean every dollar leaving your account is a claimable expense. No principal component dilutes the deduction. For a property acquired now and settled before mid-year, an interest-only term locks in the highest possible tax benefit while the full offset rules still apply.

Consider a buyer who contracts in September on a two-bedroom period conversion near Bridport Street. Purchase price sits at the current Albert Park median. With a 20 per cent deposit, the loan amount funds at a variable rate just under 6 per cent. Interest-only repayments run close to $3,200 per month. Rental income covers $2,600. The monthly shortfall of $600, together with body corporate levies, council rates, insurance, and agent fees, generates a loss that offsets the buyer's consulting income at the marginal rate. Settlement occurs in November, giving fifteen months of full negative gearing before the quarantine takes effect.

Eligible new builds retain full offset rights

The Treasury Laws Amendment defines an eligible new residential dwelling as one constructed on previously vacant land or where the project increases the total number of dwellings on the site. A knock-down rebuild that results in the same number of dwellings does not qualify. A terrace converted into two separate titles does.

Albert Park has limited vacant land, but occasional multi-unit developments and terrace subdivisions do qualify. A new build purchased by an investor retains negative gearing rights even after 1 July 2027, provided the property has not been occupied for more than twelve months before the investor's purchase. That carve-out makes newly completed projects appealing to buyers planning to hold for a decade or more. Lenders typically require presale contracts and registered plans before settlement, which extends the timeline but secures the tax treatment.

Borrowing capacity tightens under DTI caps

APRA's debt-to-income cap, effective from 1 February 2026, restricts lenders to funding no more than 20 per cent of new investor loans at a DTI of six times gross income or higher. That cap applies separately to the investor portfolio, so a buyer earning $180,000 can borrow up to $1.08 million before hitting the threshold, assuming no other debt. Rental income does not count toward gross income for DTI purposes but does feed into serviceability.

In practice, most lenders assess rental income at 80 per cent of the lease amount to account for vacancies and management costs. A property leased at $2,600 per month contributes $2,080 to serviceability. The remaining $520 shortfall, plus interest on the full loan amount at the serviceability buffer of three percentage points above the product rate, must be serviced from your salary or business income. For buyers with substantial equity in an owner-occupied property, releasing that equity into an investment property finance structure can keep the DTI ratio within limits while still accessing the deductions.

Fixed or variable rates depend on your offset strategy

A variable rate investment loan allows you to link an offset account and park income there to reduce interest without reducing the loan balance. Every dollar in offset cuts the interest charged, but because you have not made a principal repayment, the loan balance stays high and future deductions remain unchanged. That approach works for buyers who expect lumpy income or want to retain liquidity.

Fixed rates lock in repayments but do not allow offset. The decision hinges on whether you value certainty over flexibility. In the current environment, fixed rates for investment loans sit slightly above variable rates for one- and two-year terms. A split structure, part fixed and part variable, gives you a hedge without sacrificing all access to offset. Lenders assess each split portion separately, so a 50/50 split on a loan amount of $900,000 means two facilities of $450,000 each, one fixed and one variable, each with its own interest calculation.

Refinancing existing holdings before the rules change

If you already own a grandfathered property, contracted before 7:30pm on 12 May 2026, refinancing does not affect its negative gearing status. The eligibility attaches to the date you entered the purchase contract, not the date you took out or switched the loan. That means you can refinance to a lower rate, switch from principal-and-interest to interest-only, or pull equity out for a second purchase without losing the full offset treatment on the original property.

Releasing equity from a grandfathered Albert Park property to fund a deposit on an eligible new build gives you two assets, both with full negative gearing rights. The borrowing is quarantined to purpose, not security. Interest on the amount borrowed to acquire or hold the investment property remains deductible even if the loan is secured against your home, provided the funds are used for the investment. Loan documentation and separation of accounts matter, particularly if you later draw additional funds for private use.

Stamp duty and holding costs still apply in full

Victoria charges stamp duty on investment property at the standard residential rates, plus an additional 8 per cent absentee owner surcharge if you are a foreign purchaser or absentee owner. Stamp duty is not a claimable deduction but forms part of the cost base for capital gains tax purposes. Buyers structuring for maximum deductions should factor in settlement costs, which for a purchase in the high six figures typically run close to $50,000 once duty, conveyancing, building inspection, and lender fees are included.

Ongoing holding costs such as council rates, water rates, body corporate levies, landlord insurance, property management fees, repairs, and loan interest are all claimable in the year incurred, provided the property is rented or genuinely available for rent. The ATO expects a property to be advertised at market rent and available to tenants. Holding a property vacant without genuine effort to lease it can see deductions disallowed.

Rental income and vacancy assumptions

Lenders assess rental income using a valuation or a current lease. If the property is tenanted, the existing lease provides the income figure. If vacant, the valuer provides an opinion of market rent. Most lenders then apply a 20 per cent reduction for vacancies and costs, crediting 80 per cent of the gross rent toward serviceability. That assumption is conservative in Albert Park, where vacancy rates have sat below 2 per cent for most of the past two years, but it remains the standard industry approach.

A property leased at $2,800 per month contributes $2,240 to your assessed income. The shortfall between that figure and the loan repayment, together with other property costs, determines the size of the loss you can claim. The larger the loss, the greater the offset against your other income and the higher the tax refund. That refund improves cash flow, which in turn supports serviceability for additional borrowing capacity if you plan to expand the portfolio before the quarantine rules take full effect.

Soar Finance works with buyers across Albert Park who are locking in contracts now to secure the final window of full negative gearing. Call one of our team or book an appointment at a time that works for you.

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