Keep it, rent it, or sell it: the family home when a parent moves into aged care

When a parent moves permanently into residential aged care, one question lands on the family almost immediately, and it's a big one: what do we do with the house? For most families the home is the largest asset they'll ever deal with, and the major part of the eventual estate, and the decision about it has to be made quickly, at a stressful time, usually by people who've never had to understand how aged care is paid for. It is also a decision where the "obvious" answer is frequently the wrong one. This article lays out the framework for thinking about it clearly — but it is general information only, not personal advice, and this is genuinely a decision to model with a specialist adviser before you act.

Why is it so hard — what four systems are at once?

The reason this decision is so slippery is that what you do with the home ripples through four different government systems simultaneously, and they don't pull in the same direction. The first is the accommodation payment — a residential aged care place comes with a room price you can pay as a RAD (a Refundable Accommodation Deposit, a large, refundable lump sum), a DAP (a Daily Accommodation Payment, a daily, rent-like charge on whatever you haven't paid as a lump sum), or a mix of the two, which our article on the RAD/DAP decision explains. The second is the means-tested care fee, calculated on the resident's assessed income and assets, into which the home, and any rent from it, can feed. The third is the Age Pension, which has its own rules for the home and for income and assets, and which can shift when someone enters care. And the fourth is tax, chiefly capital gains tax, if the home is rented or sold.

Change what you do with the house, and you move all four at once. That's why intuition is such a poor guide here, and why the rest of this article is about interactions, not simple answers. One clarification worth making up front, because it's widely misunderstood: Australia's aged care system was substantially reformed when the new Aged Care Act 2024 commenced on 1 November 2025 (Department of Health, https://www.health.gov.au/our-work/aged-care-reforms). But the government has been explicit that the types of income and assets that count, and the treatment of the family home, did *not* change on that date (Department of Health, https://www.health.gov.au/our-work/residential-aged-care/charging/means-assessment). The change that catches families out on renting is older than the 2025 reforms — more on that below.

How do the three options weigh up?

Selling frees a lump sum, which can fund a RAD and simplify the whole picture; a RAD held with the aged care provider is also treated differently from ordinary assets in the means assessment. The trade-offs are that the proceeds of the sale become assessable and can reduce the pension, capital gains tax rules — generally kind to a main residence, but with limits — come into play, and, not to be dismissed, selling the family home is often the hardest thing emotionally. Our article on selling the home during care covers the mechanics, timing and proceeds.

Renting it out produces cashflow, which can cover a DAP and other costs, and keeps the asset in the family. But here's the trap that catches people: the rent is assessed as income for both the aged care fee and the pension, and the home's capped value may be assessed as an asset as well. That rental income used to be exempt — but for anyone who has entered residential care since 1 January 2016, the rental-income exemption was removed (Department of Health, "Removal of the rental income exemption"). This is the crucial point that surprises families: it is not a change from the 2025 reforms, it has been the position for a decade, and it means renting can quietly raise the means-tested care fee and cut the pension, sometimes by more than the rent actually brings in. Plus someone — usually the family, or the person's attorney — has to be the landlord. It can be the right move; it is not the free money it looks like.

Keeping it vacant — for a while, or to hold for the family — preserves the asset and your options, and the former home is exempt from the aged care assets test for two years from the date the person enters care (My Aged Care, https://www.myagedcare.gov.au/means-assessments-residential-aged-care). After that two-year window, its value counts up to a capped amount, which is $214,884 as at 20 March 2026 (or the net market value if lower). The catch is that there's no income coming in to offset the DAP, so that's paid from savings; the house still costs money to hold (rates, insurance, upkeep); and the exemption is time-limited, so this option quietly gets more expensive the longer it runs.

What interactions catch people out?

A few patterns are worth burning into memory, because they're where families lose money. Renting to "pay the fees" can go backwards: if the rent plus the assessed home value push the care fee up and the pension down, you can end up barely ahead, or behind, and the arithmetic is specific to the person and genuinely not obvious. "Keep it for the kids" is rarely free, because paying a DAP out of savings while a vacant house costs money and the two-year exemption ticks down can quietly cost more than the house appreciates. And not deciding is itself a decision — drifting into "leave it empty for now" because no one made a call is usually the least-modelled and most expensive choice of all.

Why is this really a "get advice" decision?

I don't say this as a throwaway line. This is one of the most complex intersections in the entire financial system for older Australians; the choice is largely irreversible, since you can't un-sell a home; and the right answer turns entirely on the specific person's assets, income, health outlook and the current rules. A specialist aged care financial adviser can actually model the three options against each other and show you the numbers — which is the only way to know which one wins for your family. A solicitor and the wider family belong in that conversation too. The cost of that advice is trivial next to the size of the decision.

What do the worked examples show?

These are illustrative only — deliberately so, because the whole point of this article is that the real numbers have to be modelled for the individual. They are not personal advice.

Consider Margaret, 84, a widow entering permanent residential care, who owns her home outright and has modest savings and a part Age Pension. Her two children instinctively want to rent the house out "to help pay the fees." On these facts that instinct is the trap the article is about: because Margaret entered care after 1 January 2016, the rent is fully assessed as income for both her means-tested care fee and her pension, and once the two-year exemption lapses the home's value counts as an asset up to $214,884 (as at 20 March 2026). The rent could push her care fee up and her pension down by an amount that, together, eats much of what the tenant pays. On these facts it is generally rational for a family in Margaret's position to have a specialist adviser model renting against selling before signing a lease — because the "obvious" income play can quietly go backwards.

Now consider Robert, 79, a self-funded retiree with substantial savings entering care, whose room has an advertised price of, say, $550,000. His family assumes they must sell his home to fund it. On these facts selling is one rational route — the proceeds could pay the RAD as a refundable lump sum, and a RAD held with the provider sits outside the ordinary assets test — but it is not the only one: he might instead pay a DAP from his investment income and keep the house, or pay a partial RAD and a partial DAP. Each choice moves his means-tested care fee, his pension and his eventual capital gains position differently, and selling the family home is irreversible. On these facts it is generally rational for someone in Robert's position to get all three options costed side by side rather than defaulting to a sale for simplicity's sake.

What about the part that isn't a spreadsheet?

Finally, this is a home, not just an asset — decades of a life are in it, and for some families the right choice and the financially optimal choice aren't the same one. That's completely legitimate. The goal isn't to force the numerically perfect answer; it's to make sure that if you keep the house for reasons of the heart, you're doing it as a chosen trade-off with the real cost known — not stumbling into it and getting a nasty surprise from Centrelink or the aged care fees a year later.

What should you do in short?

When a parent goes into care, don't rush the house, and don't trust the obvious answer. Selling, renting and keeping each move the aged care fees, the pension and the tax in different directions, and the intuitive choice — sell for simplicity, rent for the income, keep it for the kids — is as likely to be wrong as right. Get the three options modelled by a specialist adviser, involve the family and a solicitor, mind the two-year exemption clock, and then decide with your eyes open. It's too big and too permanent a decision to make any other way.

Sources

• Department of Health — Means assessment for residential aged care
• My Aged Care — Means assessments for residential aged care
• Services Australia — How your home affects your payment when you move into aged care
• My Aged Care — Aged care home costs and fees
• Department of Health — Aged care reforms