Loss Quarantining From 2027: How a Negative-Gearing Loss Gets Carried Forward
From the 2027-28 income year, a rental loss on a non-grandfathered property no longer reduces your salary. Here's exactly how the quarantine pool works, with the worked example from the Act itself.
If a property falls under the new negative gearing rules (see our grandfathering calculator if you're not sure which side of the 12 May 2026 cutoff it's on, or our 2027 reform guide for the full picture), "quarantined" is the word that's going to matter for anyone whose portfolio is negatively geared. It doesn't mean the loss disappears. It means the loss stops doing the one thing it does today: reducing your salary.
The pool, not a per-property ledger
The rule doesn't work property by property. Every dollar you could otherwise deduct for using or holding a residential dwelling as residential accommodation gets pooled together and compared against every dollar of assessable income from the same activity. Only the net excess is quarantined. If one quarantined property is negatively geared and another is running a healthy profit, the profit absorbs the loss before anything gets held back.
There's also a step before that: any surplus income from a grandfathered property, or a taxable gain from selling a residential dwelling as a revenue asset, reduces the excess first. So a grandfathered property doing well can shield a newer, quarantined property from having any loss held back at all.
What happens to the quarantined amount
Once there's a net excess for the year, it does three things:
- It's not deductible in that income year — it doesn't touch your salary.
- It becomes available to offset residential capital gains, applied through the same method statement that works out your CGT for the year (deferred residential gains first, then residential gains).
- Whatever's left after that rolls forward and gets tested again next year, against next year's residential rental income.
That third point is the one worth sitting with. This isn't a one-time write-off you lose if you don't use it. It's a running balance that keeps getting tested year after year until either your rental income catches up to it or you sell and it's applied against the gain.
A worked example, straight from the Act
The legislation itself includes a worked example, and it's a clean way to see the mechanic in action. Say an investor buys a residential dwelling that falls under the new rules.
| Income year | Deductions | Carried in | Assessable income | Deductible that year | Carried out |
|---|---|---|---|---|---|
| 2028-29 | $65,000 | — | $50,000 | $50,000 | $15,000 |
| 2029-30 | $70,000 | $15,000 | $52,000 | $52,000 | $33,000 |
| 2030-31 | $20,000 | $33,000 | $72,000 | $53,000 | nil |
In the first year, $65,000 of deductions against $50,000 of rental income leaves $15,000 quarantined. That carries into the second year, where a further $18,000 arises on top of it, leaving $33,000 carried out. In the third year, rental income of $72,000 is more than enough to absorb both the $33,000 brought forward and that year's own $20,000 of deductions, so nothing carries forward past 2030-31.
Three years, three different outcomes, purely from how deductions and rental income happened to land each year. That's the shape of what a quarantined property actually does to your position: not a fixed penalty, but a running comparison that resolves itself once rental income is strong enough.
What this means for a purchase decision
If you're weighing up a property that would fall under the new rules, the quarantine changes what a "negative" year actually costs you. Today, a $10,000 rental loss reduces your tax bill by something close to your marginal rate on that amount, straight away. Under quarantining, that same $10,000 does nothing for your tax bill in the year it happens — it sits in the pool until either rental income or a future capital gain absorbs it, which could be years away.
The loss isn't wasted. It's deferred, and deferred value is worth less than an immediate deduction. Whether that changes the numbers enough to matter depends on your rent growth, your other deductions, and how long you expect to hold, which is exactly the kind of scenario worth running before you sign, not after.
BrickTrack's cash flow projection calculator shows the pre-tax picture for a property you're considering; your accountant can model what quarantining does to the after-tax number.
Common questions
Does a quarantined loss disappear?
No. It stops reducing your salary in the year it happens, but it carries forward against future residential rental income, and against residential capital gains when you sell. It's a running balance, not a write-off you forfeit.
Does quarantining work property by property?
No, it pools. Every deduction from using or holding residential dwellings as residential accommodation is compared against all the assessable income from the same activity, and only the net excess is quarantined. A profitable property absorbs a loss on another one before anything gets held back.
Can a grandfathered property help?
Yes. Surplus income from a grandfathered property, or a taxable gain from selling a residential dwelling as a revenue asset, reduces the excess before anything is quarantined. A grandfathered property doing well can shield a newer one from having any loss held back at all.
When does loss quarantining start?
The 2027-28 income year, and only for properties that fall outside the grandfathering, meaning residential dwellings acquired on or after 7:30pm Australian Capital Territory legal time on 12 May 2026.
This article is general information about legislation, not tax advice. The worked example above is reproduced from the Act's own explanatory material. Confirm how loss quarantining applies to your specific portfolio with a registered tax agent.