A quarantined loss is a rental loss that can no longer offset your salary — only rental income or a capital gain from residential property. It applies to established dwellings bought on or after the reform cutoff.
Which properties are quarantined
A property falls into the quarantined camp if it's an established dwelling (not a new build) with a purchase contract signed on or after 12 May 2026, 7:30pm AEST. If either of those two things is different — the contract was signed earlier, or the property is a genuine new build — it isn't quarantined.
When the restriction actually starts
The quarantining doesn't apply from the day you sign — it takes effect from 1 July 2027, the start of the next full financial year after the reform's cutoff. Until then, a quarantined property is still identified as such, but the loss-offset restriction itself hasn't started biting yet.
What gets restricted
From 1 July 2027, a loss on a quarantined property can only be used against:
- Rental income from that property, or any other rental property you own
- A capital gain from selling residential property
It can no longer reduce your taxable salary or wages the way negative gearing traditionally has. This is the core of the reform — it doesn't remove the deduction, it narrows what it can be used against.
What happens to a loss you can't use
If a quarantined property's loss exceeds the rental income and capital gains available to absorb it in a given year, the unused portion doesn't disappear — it carries forward automatically to future years, ready to offset rental income or a capital gain whenever one becomes available. You don't need to elect or apply for this; it happens as part of your normal return.
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Check my regime freeThis guide reflects the announced reform rules as a general explainer and isn't a substitute for advice from your accountant about your specific situation.