Investment property tax deductions: what you can and can’t claim

Investment property tax deductions you can claim immediately

These costs are deductible in the year you incur them, as long as the property is rented or genuinely available for rent on commercial terms:

• Interest on the loan used to buy the property, or to pay for repairs, depreciating assets or renovations on it.
• Council rates, water and sewerage charges (if you pay them), land tax and emergency services levies.
• Landlord insurance, body corporate fees, and property management fees and commissions.
• Advertising for tenants, which does not need apportioning even if the property is used privately at other times.
• Repairs and maintenance that restore something to its working condition, such as replacing a broken window pane or part of a fence.
• Depreciating assets costing $300 or less, unless they form part of a set costing more than $300.

Capital works vs depreciation: claiming over several years

Capital works deductions cover the building itself and structural improvements: construction, extensions, remodelling a bathroom, a carport, adding a fence, a driveway or retaining wall. The ATO says the rate is generally 2.5% or 4% a year (over 40 or 25 years) for buildings built after 17 July 1985, and you can only start once construction is complete. For a residential building, the ATO’s rates table gives 4% where construction started from 18 July 1985 to 15 September 1987 and 2.5% from 16 September 1987. Total deductions can never exceed the construction cost. If the vendor can’t give you the actual building costs, the ATO accepts an estimate from a quantity surveyor or other independent qualified person, and the fee for that estimate is itself deductible.

Depreciating assets are plant that is separate from the structure: carpets, floating timber floors, curtains, appliances such as a washing machine or fridge, and furniture. They are claimed over their effective life using the diminishing value or prime cost method.

Since 1 July 2017 individual investors can’t claim depreciation on second-hand assets, meaning anything already in an established property when you bought it, or assets from your own home when you turn it into a rental. The ATO’s exceptions include assets (or a rental property) purchased before 7:30 pm AEST on 9 May 2017, assets acquired before then and installed before 1 July 2017, people carrying on a business of letting rental properties, excluded entities such as companies, and properties not used for residential accommodation. Capital works deductions are not affected by this rule.

Repairs, improvements and initial repairs

The label on the invoice doesn’t decide the treatment. A repair restores the efficient function of something that wore out while you rented the property and is deductible immediately. Replacing fibro sheeting with plasterboard is still a repair; replacing it with a brick feature wall is an improvement, claimed as capital works. Replacing an entire kitchen is capital too.

Initial repairs fix damage or defects that existed when you bought the property. They are capital even if you didn’t know about them, so they go into the cost base or capital works rather than being deducted straight away.

Interest and borrowing expenses

Interest is deductible to the extent the loan was used for the rental. If you redraw or refinance and use part of the money for a car or holiday, the interest on that part is not deductible. You can’t deduct principal repayments, and interest on a loan for your own home is not deductible just because a rental property secures it. Prepaying up to 12 months of interest in advance is allowed.

Borrowing expenses (loan establishment fees, lenders mortgage insurance, mortgage broker fees, valuation fees for the loan and stamp duty on the mortgage) are spread over 5 years or the loan term if shorter. If they total $100 or less, deduct them in full. Stamp duty on buying the property itself is not deductible; it forms part of the cost base for CGT.

What landlords can’t claim

The ATO lists several costs that are never deductible for individual residential investors:

• Travel to inspect, maintain or collect rent from a residential rental property, from 1 July 2017, unless you are in the business of letting properties or are an excluded entity such as a company. Owning one or a few properties is not usually a business.
• Holding costs of vacant land incurred on or after 1 July 2019, including while a new home is being built and until it can be lawfully occupied and is available for rent.
• Purchase and sale costs such as conveyancing and advertising to sell, which go into the cost base instead.
• Expenses your tenants pay, such as their electricity.
• Ownership costs of a holiday home that is not mainly used (or held) to earn rent.

Is land tax deductible on an investment property?

Yes. State land tax on a rental property is deductible in the year you incur it, along with council rates. Land tax is assessed on the combined taxable land value of what you own in a state, so a single modest rental may fall under the threshold while a second property tips you over. In NSW, land that a natural person owns and lives in as their principal place of residence is generally exempt (Revenue NSW), so it doesn’t count towards the total. In NSW the general threshold for the 2026 land tax year is $1,075,000. An individual whose NSW investment land is valued at $1,380,000 in total would pay about $4,980, all of it deductible against rent (split across properties if there are several). Each state sets its own threshold and rates; see the land tax calculator for yours.

Negative gearing worked example

Negative gearing means your deductible rental expenses exceed your rent, and the loss reduces your other taxable income. Take an investor earning $125,000 who owns two NSW rentals with combined land value of $1,380,000. One of them rents for $600 a week and is let for 50 weeks in 2026–27:

How negative gearing changes from 1 July 2027

Even with the $8,477 tax saving, the investor is about $10,013 a year out of pocket in cash (the $8,000 capital works deduction is not a cash cost), which only pays off if the property grows in value. From 1 July 2027, under laws the ATO says have passed, losses on established residential properties bought from 7:30 pm AEST 12 May 2026 can only be deducted against residential property income (including capital gains). Excess losses carry forward. Properties held at that time keep negative gearing until sold, and new builds stay negatively gearable. These changes don’t affect your 2025–26 or 2026–27 returns.

Apportioning and record keeping

Apportion your expenses if the property was rented for only part of the year, you or family used it privately, you rent out only part of it, or you charge family below-market rent. For below-market rent, the ATO limits deductions to the rent received, so there is no loss to claim. Co-owners split income and expenses by their legal interest, not by who paid.

Keep loan statements, invoices and a depreciation schedule: they support each year’s deductions and later your CGT cost base when you sell. If a tradesperson doesn’t quote an ABN, the ATO says you may have to withhold 47% of the payment and send it to the ATO, and you may not be able to claim the deduction.