Investment Property Tax Deductions: What You Can and Cannot Claim

Getting your investment property tax deductions right can mean thousands of dollars difference on your tax return. Every year, Australian property investors miss legitimate claims, or claim things they should not and draw ATO attention. This guide sets out what you can and cannot claim on a rental property, how depreciation and negative gearing work, and the errors that catch investors out at tax time.

Whether you own one apartment or several properties, the rule is the same. If an expense helps you earn rental income, it is usually deductible. What changes is when you claim it, how much, and over how many years.

For advice on your own situation, speak with a registered tax agent. If you would rather have it handled from start to finish, our property investor tax return and dedicated property accountant options are covered at the end of this guide.

What Investment Property Tax Deductions Actually Cover

The Australian Taxation Office lets you claim expenses incurred in earning assessable rental income. Broadly, these fall into three groups:

• Immediately deductible expenses, which you claim in full in the year you pay them.
• Expenses claimed over several years, such as borrowing costs and depreciation.
• Capital costs, which are added to your cost base and counted when you sell through capital gains tax, rather than deducted against rent.

Which group an expense falls into decides when and how much you can claim, so it is worth sorting out first.

Expenses You Can Claim Immediately

These are the everyday running costs of holding a rental property, deductible in the same financial year:

• Loan interest, being the interest portion of your mortgage repayments on the investment loan. This is typically the largest single deduction. Only the portion relating to the investment is claimable, so if any of the loan was used privately it must be apportioned.
• Council rates, land tax and water charges.
• Property management and letting agent fees.
• Landlord insurance and building insurance.
• Strata and body corporate fees, covering the general administration and maintenance portions.
• Repairs and maintenance, meaning fixing what is broken or worn, such as a leaking tap or repainting after a tenant. This is different from improvements, which are covered in the mistakes section below.
• Advertising for tenants.
• Cleaning, gardening, pest control and general upkeep.
• Accounting and bookkeeping fees for managing the property.

If your property was only rented for part of the year, or you use it privately at times such as a holiday home, these costs must be apportioned to the period it was genuinely available for rent.

Expenses Claimed Over Multiple Years

Some costs are deductible, but spread across time rather than claimed all at once:

• Borrowing costs, such as loan establishment fees, lender’s mortgage insurance (LMI), title search fees and mortgage broker costs, are generally deducted over five years, or the life of the loan if that is shorter. If total borrowing costs are $100 or less, you can claim them immediately.
• Depreciation, covering capital works and plant and equipment, is the deduction most investors under-claim. Capital works cover the building structure and are generally claimed at 2.5% a year over 40 years. Plant and equipment covers removable assets like carpets, blinds, air conditioners, ovens and hot water systems. Since 9 May 2017, investors generally cannot claim depreciation on previously used plant and equipment in a second-hand residential property. New properties, and assets you buy new yourself, are not affected, and capital works on the building can still be claimed. A depreciation schedule from a quantity surveyor sets out what applies to your property, and Accountants Direct arranges these through our partner, Duo Tax.

A Worked Example

Numbers make this clearer. Take an investor on a $120,000 salary who owns one rental property. In a typical year the figures might look like this.

The property runs at an $8,700 loss for the year. That loss comes off the investor’s other income, so instead of being taxed on their full $120,000 salary they are taxed on $111,300. How much tax that saves depends on their marginal rate. Depreciation does much of the work, because it is a paper deduction that costs nothing out of pocket in the year you claim it.

Negative Gearing: How It Fits In

A property is negatively geared when its deductible expenses, being interest, running costs and depreciation, exceed the rental income it produces. That net rental loss can be offset against your other income, such as your salary, reducing your overall taxable income.

Negative gearing is not a deduction in itself. It is what happens when your total investment property tax deductions are larger than your rent. It is common and legal, but it only works if you claim every deduction correctly and keep good records. Whether it suits you depends on your income, cash flow and plans, and a property accountant can run the numbers for you.

One change is coming that every investor should know about. In the 2026-27 Federal Budget, handed down on 12 May 2026 and now law, the Government reformed negative gearing from 1 July 2027. From that date, negative gearing on residential property is limited to new builds. 

Properties you already held on budget night, 12 May 2026, are not affected. For an established property bought after that date, you can no longer offset the rental loss against your salary, so the main tax benefit of negative gearing no longer applies. 

If you are buying an established property, this changes the numbers, and a property accountant can show you where you would land. You can read the details on the ATO’s reforms to negative gearing and capital gains tax page.

Repairs, Improvements and Initial Repairs

The line between a repair and an improvement decides whether you claim now or over time, and it is where investors most often go wrong.

• A repair returns something to its original condition, like fixing a leaking tap or replacing a few cracked tiles. You claim it in full in the year you pay for it.
• An improvement makes something better than it was, like replacing a tired kitchen with a new one. You claim it over time as capital works or depreciation, not as an immediate expense.
• An initial repair, meaning fixing a fault that was already there when you bought the property, is treated as capital even when it looks like a repair. If the gutters were rusted through on settlement day, patching them is not an immediate deduction.

When you are not sure, keep the invoice and ask your accountant before you claim.

What You Cannot Claim, or Must Treat Differently

• Stamp duty on the purchase is not immediately deductible. It is a capital cost added to your cost base and accounted for when you sell, in most states. Annual state land tax is treated differently and is generally deductible.
• The purchase price and capital improvements. A new kitchen, an extension or a renovation is a capital improvement, not a repair. These are depreciated over time or added to your cost base, not claimed as an immediate expense.
• Expenses for periods the property was not available for rent.
• Costs your tenant paid, for example utilities in their name.
• Travel to inspect residential rental property, which is no longer deductible for most individual investors.

Capital Gains Tax When You Sell

When you sell an investment property, the profit is subject to capital gains tax (CGT). If you have held the property for more than 12 months, you are generally entitled to a 50% CGT discount as an individual. Your cost base, being the purchase price plus stamp duty, legal fees and capital improvements, reduces the taxable gain, which is why keeping records from day one matters. The contract date, not the settlement date, usually determines which financial year the gain falls in.

Key Dates and How to Time Your Claim

A few dates and timing choices are worth planning around.

• 31 October is the deadline to lodge your own return. Lodging through a registered tax agent generally gives you a later deadline, often well into the following year.
• Prepaying expenses before 30 June can bring a deduction forward. As an individual you can prepay up to 12 months of some expenses, such as loan interest or insurance, and claim them in the year you pay.
• A PAYG withholding variation lets you receive the benefit of a negatively geared property through the year, rather than waiting for a refund after you lodge.

Keep every receipt, loan statement and depreciation schedule for 5 years from the date you lodge.

Common Mistakes That Attract ATO Attention

Rental deductions are a perennial ATO focus area, and data-matching has made discrepancies easy to spot. The most common errors are:

• Claiming repairs when it is actually an improvement. Replacing a broken fence panel is a repair. Replacing the entire fence with a better one is a capital improvement.
• Not apportioning interest when part of the loan was redrawn for private use.
• Missing depreciation entirely by never commissioning a schedule.
• Over-claiming on a part-year or holiday rental without apportioning private use.
• Poor record keeping, meaning no receipts, no loan statements, and no depreciation schedule.

Avoiding these errors keeps you off the ATO’s radar and makes sure you claim everything you are entitled to.

Which Service Suits You

Two ways to work with Accountants Direct on your investment property.

Your Investment Property Tax Deductions Checklist

Work through this before you lodge:

• Loan statements showing the interest charged on the investment loan for the year
• Bills and receipts for rates, land tax, water, insurance, strata and property management
• Receipts for any repairs and maintenance during the year
• A depreciation schedule prepared by a quantity surveyor
• Records of any capital improvements, kept for the eventual CGT calculation
• Rental income statements from your property manager
• Everything stored for 5 years from the date you lodge

Your investment property tax deductions are only as good as the records you keep.

Get Ready for Tax Time With Accountants Direct

You do not have to work out what you can claim on your own. At Accountants Direct, you deal directly with registered Australian tax agents, with fixed pricing, no surprise bills, and phone or online appointments, including after hours. For a one-off lodgement, our property investor tax return service prepares, double-checks and lodges your return, often in a single call. For year-round support with bookkeeping, depreciation tracking and unlimited advice across your portfolio, a dedicated property accountant keeps everything in order for a fixed monthly fee.

Here is how to get started

1. Choose your service: a one-off property investor tax return from $389, or an ongoing property accountant from $149 a month.
2. Book a call online or call 1300 829 746.
3. Bring your loan statements, property bills and any depreciation schedule.
4. Get a clear plan, often on the same call.

Frequently Asked Questions