Our investment property is in both our names — if one of us dies, does it lose its negative gearing exemption?

The unit is in both names. It was bought well before the 2026 Budget, so when the negative gearing changes were announced you dug out the contract, saw the date sat comfortably before 7:30pm AEST on 12 May 2026, and stopped worrying about it.

The question underneath that is less comfortable. Property is held for decades, and across that span one owner dies, or a marriage ends, or the family home becomes the rental. Does the exception survive those events, or does it die with the arrangement that created it?

What received assent yesterday

The Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 received Royal Assent on 26 August 2026 and is now Act No. 71 of 2026 — the bill we wrote about last week, carrying the permanent $20,000 instant asset write-off and the return of company loss carry back.

What was not in it when it was introduced on 25 June is Schedule 4. Two Government amendments were moved and agreed in the House of Representatives on 18 August 2026, adding a negative gearing schedule with very little to do with the rest of the Act — and the part most likely to matter to a household rather than a business.

The gap it closes

Start with the rule it sits on top of. Residential dwellings acquired after 7:30pm AEST on 12 May 2026 are subject to loss quarantining from 1 July 2027 — net rental losses stop coming off salary and wages. Dwellings acquired before that moment are excepted, and so are new residential dwellings.

Now the technical problem. Property law and tax law disagree about joint tenancy. Under property law a joint tenancy carries a right of survivorship: when one joint tenant dies, the other simply remains owner of the whole thing. Tax law does not follow that. Section 108-7 treats joint tenants as though each held a separate equal interest as tenants in common, and section 128-50 deems the surviving joint tenant to have acquired the deceased's share at the date of death.

Put those together and you get the result nobody intended. A couple who bought in 2019 as joint tenants are plainly on the right side of 12 May 2026. If one of them dies in, say, 2029, the survivor is deemed to acquire the other half on that day — after Budget night. Without a fix, half the property drops out of the exception and half the rental loss is quarantined, purely because somebody died.

Three situations it now covers

New section 26-156 covers a surviving spouse, whether the deceased's interest comes across by survivorship as a joint tenant or as a beneficiary of the estate. The survivor is treated as having acquired that interest at the same time the deceased did — so if the deceased was inside the exception, the survivor stays inside it.

New section 26-157 covers co-owners who are not spouses: siblings who bought together, friends, a parent and an adult child. One extra condition applies here — the survivor must already have held an interest in the same dwelling, as joint tenant or tenant in common.

New section 26-158 covers relationship breakdown, where an ownership interest is transferred from a spouse under the court orders and court-approved agreements described in paragraphs 126-5(1)(a) to (f). If the transferor acquired before Budget night, the transferee is taken to have acquired at that time.

In every case the test is what the other person had, not what the recipient has. A survivor or a transferee inherits the deceased's or the transferor's position — no better, no worse.

It follows through to capital gains tax as well

Section 26-159 extends the same treatment to the CGT side, which matters because the 2027 package has two halves. Where a dwelling is treated as a new residential dwelling under these rules, the recipient keeps the choice between the 50% CGT discount and cost base indexation, and the 30% minimum tax on capital gains does not apply on disposal. Without it, someone could have kept the ability to negatively gear while losing the capital gains position.

The fourth case, which is getting no attention

The one worth reading twice has nothing to do with death or divorce. When a home that has only ever been a main residence is first used to produce income, subsection 118-192(2) deems it to be acquired at market value at that moment. That is a long-standing rule and normally a helpful one — it means you do not have to keep cost base records for a house you live in.

Here it would have done damage. A family who bought in 2015, then move out and rent the place in 2029, would have been deemed to acquire it in 2029 — after Budget night — losing the exception on a property owned for fourteen years. New subsections 26-155(3AA) and (3AB) switch that deeming off for this purpose, so the original acquisition date is the one that counts.

What it does not do

It preserves an exception; it does not create one. If the deceased or the transferor acquired the dwelling after 7:30pm AEST on 12 May 2026 and it is not a new residential dwelling, there is nothing to pass on. It also does nothing for a sale — selling a grandfathered property and buying another established one still gives the treatment away.

Nor is it urgent. Schedule 4 commences on the first 1 January, 1 April, 1 July or 1 October after assent, which makes it 1 October 2026, and it applies to net rental losses incurred in the 2027-28 income year and later. Nothing in it touches the return being lodged this month.

This is general information current as at 27 August 2026, not advice about your property. Two things here are worth knowing rather than assuming, and both are matters of record rather than judgement: whether your title is held as joint tenants or as tenants in common — people are frequently certain about this and frequently wrong — and the contract date for each residential property you own, measured against 7:30pm AEST on 12 May 2026. Those two facts decide whether any of this reaches you at all.

If you want to see what a property does to your position year by year, the investment property calculator on this site is built for that, and our service for property investors is there for the annual work.