The short version
| Sell | Keep | |
|---|---|---|
| Deposit for your home | Larger, in cash | Smaller, unless you borrow against the equity |
| Loans to service | One | Two |
| Capital gains tax | Paid now | Deferred until you sell |
| Selling costs | Paid now | Deferred |
| Future growth | You keep only your home's | You keep both |
| Holding cost | Gone | Continues |
| Risk | Concentrated in one home | Spread across two properties, but more debt |
Selling: a bigger deposit and one loan
Selling turns the investment into cash. After the loan is paid out, the selling costs (agent's commission, marketing, legal fees) and the capital gains tax, what's left goes toward the home deposit. A bigger deposit means a smaller home loan, lower repayments and, below 80% of the price, no lenders mortgage insurance.
The cost is that you give up a growth asset. Whatever it might have done over the next ten years, you won't have it.
Keeping: growth on two properties, two loans to carry
Keeping the investment means it keeps working while you live in your home. The catch is borrowing capacity. A lender will count the investment loan repayments as a commitment and only part of the rent as income, then test both loans at a higher rate than you'd actually pay. Plenty of people who could comfortably buy their home with one loan find they can't with two.
Keeping also means the holding cost continues. In our example of a $650,000 house with a 20% deposit at 6.2% interest only and rent of $560 a week, that's about $248 a week after rent and running costs, before tax. That's on top of your new home loan.
The tax on selling
If you sell, capital gains tax is usually the largest cost after the loan. The rules changed in 2026.
For established residential property acquired after 7:30pm AEST on 12 May 2026, from 1 July 2027 rental losses can only be offset against residential property income and gains, with unused losses carried forward. From 1 July 2027 the 50% CGT discount is replaced by an inflation-indexed cost base, with a 30% minimum tax rate for resident individuals (the gain taxed as the last slice of income). Assets held before 1 July 2027 are treated as sold and reacquired on that date, keeping the old discount on the gain to that date. Qualifying new builds can choose either treatment. Properties owned before 12 May 2026 keep the old loss treatment. Your accountant can tell you how it applies to you.
Our guide to the 2026 tax changes covers this in more detail.
Why the six-year rule doesn't help here
People often mention the "six-year rule" as a way to avoid capital gains tax. It doesn't apply to most investments bought before a first home.
The rule lets you keep treating a former home as your main residence for up to six years while it's rented out. The ATO is clear that to be your main residence, you must have lived in it. A property you bought as an investment and rented out from day one was never your home, so there is nothing to extend. The gain is taxable.
If you moved into the investment at some point and genuinely made it your home, a partial exemption may be available. The calculation has specific rules, and it's one for your accountant.
The middle path: keep it and release equity
There's a third option. Keep the investment and borrow against the equity it has built up, using that as part of your home deposit. You keep the growth asset and avoid selling costs and capital gains tax for now.
It isn't free. You end up with more total debt, two properties exposed to the same interest rates, and a holding cost that's now larger. Your borrowing capacity has to cover all of it, with a buffer. Our short piece on using equity explains how it works and where it goes wrong.
Diversification cuts both ways
Two properties in different markets spread the risk that one area stalls. But it's still all property, all leveraged, and all sensitive to the same interest rate. Selling the investment leaves you with one asset and less debt. Some people sleep better that way, and that has a value too.
The questions that decide it
- Can you service both loans, with a buffer? A mortgage broker can answer this.
- What would you actually net from a sale, after costs and tax? Your accountant can estimate the tax.
- Can you carry the holding cost alongside your new home loan, before any tax benefit?
- Does the investment still deserve to be held? If the suburb or pocket has weakened, keeping it may just be inertia. A Portfolio Health Check looks at that.
The Escape Plan models the sell option with costs and tax built in, so you can see what each path does to the year you could buy.
Sources
- ATO, "Capital gains tax and the main residence exemption", July 2026
- Accountants Daily, "Top 10 things you need to know about the CGT changes", September 2026
- APRA, "APRA maintains current macroprudential policy settings in highly uncertain environment", May 2026
General information only. Nothing on this site takes into account your objectives, financial situation or needs, and it is not financial, credit, tax or legal advice. Past performance is not a reliable guide to future performance.