What happens if I sell my investment property at a capital loss under the 2027 rules?

If you sell an investment property for less than its cost base, you make a capital loss rather than a capital gain. A capital loss cannot be deducted against your salary, rent, or any other ordinary income — it can only be offset against capital gains. If you have no capital gain in the same income year, the loss is not wasted: it carries forward to future years and waits there until a later capital gain absorbs it.

The changes enacted in June 2026 — the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026), which received royal assent on 26 June 2026 and applies to CGT events on or after 1 July 2027 — reshape how capital gains are taxed. They end the 50% discount for individuals, bring back CPI indexation of the cost base, and add a minimum 30% tax on certain gains under a new Division 119. The way a capital loss works is different: it is part of the ordinary capital gains machinery, and the reform keeps that machinery.

One point matters for the new 30% floor. Because capital losses are applied inside the ordinary calculation before the Division 119 minimum tax is worked out, a loss reduces the gain the floor can bite on — you reach the floor step only on the gain that remains after your losses.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

What is a capital loss on an investment property?

A capital loss is the mirror image of a capital gain. When you dispose of a property, you compare your capital proceeds — usually the sale price — with the property’s cost base. Where proceeds fall short, you have made a loss on the disposal.

For a loss, the figure you compare against is the reduced cost base, a version of the cost base that leaves out some amounts (for example, costs you have already claimed as a deduction). So the calculation is: capital proceeds less than the reduced cost base means a capital loss of the difference.

capital proceeds − reduced cost base = capital loss (where the result is negative)

A loss is real for tax purposes only when a CGT event happens — most commonly the sale. A property that has simply fallen in value on paper, but that you still hold, has not produced a capital loss you can use. The loss crystallises when you dispose of the asset.

Can a capital loss reduce my salary or other income?

No. This is the single rule that trips people up, and the reform does not change it. A capital loss can be offset only against capital gains — not against your wages, your rental income, or any other ordinary income.

Two things follow from that. First, if you have capital gains in the same income year — from another property, from shares, from any CGT asset — your capital loss reduces those gains. Second, if you have no capital gains this year, the loss carries forward. Unused capital losses keep rolling forward to future income years until later capital gains use them up; there is no time limit on carrying a capital loss forward.

Order matters when a discount is in play. For CGT events before 1 July 2027, the ATO’s CGT discount rules apply capital losses to a gain first, and the 50% discount then applies to what is left (as at July 2026). Applying a loss before the discount, rather than after, changes the taxable figure — which is why the sequence is set by the rules rather than left to choice.

How do capital losses work under the 2027 rules?

The reform changes the tools used on a capital gain, not the treatment of a capital loss. For CGT events on or after 1 July 2027, three changes sit in the enacted package (as at July 2026):

• The 50% discount ends for individuals, trusts and partnerships. It is retained for new residential dwellings and qualifying affordable housing, and complying super funds keep their 33.33% discount.
• CPI indexation of the cost base returns, lifting most cost base elements for inflation so tax falls on the “real” gain — see our explainer on how cost base CPI indexation works.
• A minimum 30% tax applies to residential and non-residential gains under a new Division 119 — a floor, not a flat rate — covered in our explainer on the 30% minimum tax on post-2027 capital gains.

None of those three is a loss rule. A capital loss still does the same two jobs: it reduces capital gains in the same year, and it carries forward when there are none to reduce.

Where the 2027 settings and a loss meet is the order of operations. The Division 119 minimum tax bites on your “minimum tax capital gain” — broadly, the covered gains that remain after step 6 of the standard capital gains method in the Act (section 102-5(1)). Capital losses are applied earlier in that same method, so they have already reduced the gains by the time the 30% floor is measured. In plain terms: losses come off first; the floor is tested against what is left.

Indexation sits on the gain side, too. The returning indexation lifts your cost base to work out a gain — the enacted method brings indexation into the capital-gain calculation (section 110-36(1A)) — rather than manufacturing or enlarging a loss. A capital loss is worked out against the reduced cost base, a different measure.

What the high-level material published so far does not spell out is the finer interaction — exactly how a specific capital loss meshes with an indexed cost base and the Division 119 floor for a given disposal. Until the ATO publishes worked guidance on that detail, this guide states the settled order rather than a step-by-step figure.

As at July 2026, the ATO has not published worked guidance on that specific interaction, and no legislative instrument under Division 119 has been registered on the Federal Register of Legislation — check both before relying on a specific treatment.

Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

Is a capital loss the same as a quarantined rental loss?

No — and it is worth separating the two, because the same reform changes both. A capital loss comes from selling a property below its cost base. A rental loss comes from holding one, when the yearly deductions on a rental exceed the rent it earns.

The June 2026 changes also alter rental losses. From the 2027–28 income year, residential rental deductions that exceed residential rental income are quarantined under the Act — they can no longer be deducted against your other income, such as salary. Instead they can be used against residential capital gains, or carried forward against future residential rental income. Interests acquired before 7:30pm AEST on 12 May 2026 are grandfathered under the earlier treatment (as at July 2026).

The practical takeaway is that a “loss” on your property can mean two different things with two different rule sets, so it is worth knowing which one you are dealing with. The ATO’s overview of the 2026 changes is the plain-language reference while detailed guidance is built out. Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

Does the main residence exemption change a capital loss?

It can remove one. If a property qualified for the full main residence exemption — broadly, it was the home of you and your family for the whole period you owned it, was not used to produce income, and sits on land of two hectares or less — you do not pay CGT on a gain, and you also disregard any capital loss. An exempt gain and an exempt loss are two sides of the same coin: you cannot use a loss on a fully exempt home to offset other gains. The ATO’s main residence exemption guidance sets out the tests.

Most investment properties are not in that position, because renting a property out is income-producing use. Where a property was your home for part of the time and a rental for the rest, at most a partial exemption applies, and a corresponding part of any gain or loss is recognised. Which part, and how it is worked out, depends on the facts of your ownership.

What records do I need for a capital loss?

The same records that prove a gain also prove a loss — and a loss you cannot substantiate is a loss you cannot use. Keep the contract and settlement statement from the purchase and the sale, stamp duty and conveyancing receipts, and invoices for any improvements, so the cost base behind the loss holds up.

The ATO’s record-keeping rules for property CGT require records to be kept for the whole period you own the property, plus at least 5 years after you dispose of it (as at July 2026). A carried-forward loss stretches that need further: you may claim it against a gain years later, so the paperwork behind it has to last until then.

Does this apply to Brix or fractional interests?

Not in any way the ATO or the legislation has yet published. As at July 2026, no ATO guidance and no registered legislative instrument maps the 2027 settings — the end of the 50% discount, the return of CPI indexation, or the Division 119 minimum tax — onto fractional or indirect interests in residential property, such as units in a property scheme or a fractional economic interest.

A Brix is a fractional economic interest in a property — a financial product under Chapter 7 of the Corporations Act 2001, not ownership of the property and not a loan. Under the MyBrix Product Disclosure Statement current as at July 2026 (version 4.0), each property is divided into 10,000 Brix representing all of its economic benefits, and the owner remains the registered legal owner throughout.

Because a Brix is a different kind of asset from a directly held property, how a gain or loss on it is treated — including whether the general capital-loss rules above read across at all — is not something the published material resolves. This guide does not state how the 2027 settings apply to a Brix, in either direction, because no published source does. The Product Disclosure Statement and a registered tax agent are the places to confirm a position for your circumstances.

What can investors take from this?

A few practical points hold, whatever the detail.

A capital loss is not a deduction against your income; it is a store of value against future or current capital gains. It offsets gains only, and it carries forward until a gain uses it — the reform leaves that shape intact.

Which set of rules applies to a disposal still comes down to timing: CGT events up to 30 June 2027 fall under the current settings, and events on or after 1 July 2027 fall under the reform. That is a matter of dates, not a prompt to bring a sale forward or hold it back — a decision like that is one for you and your adviser.

Good records make any of this workable, and a professional can apply the rules to your own numbers. A registered tax agent can confirm how a specific loss is used, how it sits with the returning indexation and the Division 119 floor, and how the transition applies to a property you already hold. Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.

For the fundamentals underneath all of this, see our guide to capital gains tax on property in Australia.