You can usually turn your home into an investment property and keep it, but three things change. Tell your lender, who may move the loan to an investment rate. Interest on the money you borrowed to buy it becomes deductible. And the 6-year rule can keep it your main residence for capital gains tax for up to six years while rented.

Turning your home into a rental at a glance
Area What changes
Your loan Lender told; the loan may be repriced as an investment loan
Interest Deductible on money borrowed to buy the home, not on later private redraws
Capital gains tax Exempt for up to 6 years of renting if no other home is your main residence
Land tax in NSW The home is no longer exempt; your total land value counts against the threshold
Insurance Landlord insurance replaces home and contents

Do you have to tell your lender?

Yes. Most loan contracts require you to tell the lender if the property stops being your home. Many lenders then reprice the loan at their investment rate, which is often higher. Some will let you keep the existing loan as is for a time; others want a new application. If the rate jumps, refinancing the loan as an investment loan elsewhere may cost less, and the refinancing page explains how to compare.

Which interest becomes tax deductible?

Deductibility follows the purpose of the borrowing, not the property. Interest on the money originally borrowed to buy the home becomes deductible once it earns rent. But if you redraw money for a car or for the next home, interest on that part is not deductible on this property, because the new borrowing was for a private purpose.

That is why many people planning to rent out a home keep spare cash in an offset account rather than paying it into the loan. Money in an offset never reduced the loan, so drawing it later does not create a mixed-purpose loan. The guide to offset accounts explains the difference, and debt recycling covers a related strategy.

How does the 6-year rule work?

When you move out, you can keep treating the property as your main residence for capital gains tax for up to six years while it produces income, and indefinitely if it does not. If you sell within that time, the gain can be fully exempt, provided you do not treat another home as your main residence for the same period.

  • Each absence gets its own six years. Move back in, then out again, and a new period starts.
  • You can only have one main residence at a time. If you buy and live in a new home, you choose which one to treat as your main residence for that time.
  • After six years, the exemption for the rented period lapses, and the market value when it was first rented usually becomes the starting point for the taxable part.

A worked example

A couple bought a Sydney townhouse in 2019, lived in it for three years, then moved to a bigger rental house for their family and leased the townhouse out from 2022. They chose not to treat any other property as their main residence. If they sell before the sixth year of renting ends, the gain on the townhouse can be fully exempt. If they buy a new home to live in, they will need to decide which property to claim, because they cannot claim both for the same period.

What happens to borrowing for your next home?

Lenders treat the rented home as an investment: they count most of the rent as income and the loan repayments as a commitment. Equity in it can fund the deposit for the next home, but borrowing against the rental to buy your new home does not make that interest deductible. The guide to using equity and the second home loan article explain the structure.

What about land tax?

In NSW your home is exempt from land tax, but a rented property is not. If the combined land value of your taxable land is above $1,075,000, land tax applies. The NSW land tax calculator works it out.

Questions people ask

Can I rent out my home without telling the bank?

You should not. Most contracts require you to tell the lender, and your insurance usually needs to change to landlord cover too.

Does the 6-year rule apply if I move overseas?

Only if you are an Australian resident when you sell. Foreign residents cannot claim the main residence exemption unless they meet the life events test.

Can I claim interest on money I redraw?

Only if the redrawn money is used to earn assessable income. Redraws for private spending are not deductible.

What are the tax implications of turning your primary home into a rental?

The rent becomes taxable income, and interest and running costs on the rented home become deductible. When you sell, capital gains tax can apply unless the 6-year rule covers the rented years. If you do not use the 6-year rule, the home is generally treated as bought at its market value on the day you first rented it out.

Charles Touma sets up the loan before you move out so the rented home and your next home are structured cleanly. A free 30-minute call covers the lender, the rate and the next purchase. General information only, not tax, legal or credit advice; speak with a registered tax agent about your own position.

Sources: ATO, treating a former home as your main residence; ATO, using your home for rental or business; Revenue NSW, land tax thresholds and rates, checked 18 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.