Owning an investment property comes with a long list of costs. The upside is that most of those costs are tax deductible, and claiming them correctly can reduce your tax bill by thousands of dollars every year.
The catch is that the ATO pays close attention to rental property claims. It is one of their top compliance focus areas, and the gap between a well-prepared claim and an audit-triggering one usually comes down to knowing the rules and keeping proper records. A broken tap replaced? Deductible. An entire bathroom upgraded? That goes through depreciation over years, not as a lump sum this financial year.
This guide covers every major deduction available to Australian property investors in 2026. If you are looking at the broader strategy behind rental property finance, including how negative gearing works, start there. This page is about the specific line items you can (and cannot) claim.
Immediate deductions you can claim each year
These expenses are claimed in full in the financial year you incur them, provided the property is rented or genuinely available for rent on commercial terms. Loan interest is almost always the biggest one. Everything else adds up faster than most investors expect.
| Deduction | What it covers | Typical annual range |
|---|---|---|
| Loan interest | Interest on the loan used to purchase or improve the investment property. Only the interest portion of repayments, not the principal. If you have a split loan (part investment, part personal), only the investment portion is deductible. | $15,000 to $40,000+ |
| Property management fees | Ongoing management (typically 7% to 10% of rent), letting fees for finding new tenants, lease renewal fees and routine inspection fees. | $2,000 to $5,000 |
| Council rates | Rates charged by your local council. Fully deductible when paid by the property owner. | $1,500 to $3,000 |
| Water charges | Supply and service charges paid by the owner. Water usage charged to the tenant is not your deduction. | $800 to $1,500 |
| Landlord insurance | Building insurance, landlord contents insurance and landlord protection insurance covering rent default or tenant damage. | $1,000 to $2,500 |
| Repairs and maintenance | Work that restores the property to its original condition without improving it. Replacing a broken window, fixing a leaky tap, repainting after tenant wear. Your own labour is not deductible, but materials are. | Varies widely |
| Body corporate / strata levies | Routine administration levies for units and apartments. Special levies for capital improvements must be capitalised and depreciated instead. | $2,000 to $6,000 |
| Land tax | State-based tax on the value of investment land. Rates and thresholds vary by state and territory. | Varies by state |
| Pest control | Regular pest inspections and treatments for the rental property. | $200 to $500 |
| Gardening and lawn care | Mowing, pruning and garden maintenance carried out by a contractor. Not your own labour. | $500 to $2,000 |
| Advertising for tenants | Costs of listing the property for rent, including online advertising and signage. | $100 to $500 |
| Legal expenses (lease-related) | Preparing or renewing lease agreements, eviction costs. Not purchase or sale legal costs. | $300 to $1,000 |
| Accounting and tax agent fees | The portion of your tax agent's fee related to the investment property section of your return. | $200 to $600 |
| Stationery, phone and postage | Costs directly related to managing the rental property, apportioned if also used personally. | $50 to $200 |
Ranges are approximate guides based on typical Australian residential investment properties. Actual costs vary by property type, location and circumstances. Always verify with your tax agent.
Depreciation and capital works deductions
Depreciation is often called a "non-cash deduction" because you don't actually spend money in the current year to claim it. You are claiming the decline in value of the property structure and the assets inside it, and it can add thousands to your annual deductions without any out-of-pocket cost at the time.
There are two categories, and they work differently.
Capital works deductions (building structure)
- Covers the building structure itself: walls, roof, floors, doors, windows, fixed cupboards, plumbing and electrical
- Claimed at 2.5% per year for residential properties where construction started after 15 September 1987
- Available for up to 40 years from the date construction was completed
- Based on original construction cost, not the purchase price you paid
- A quantity surveyor can estimate original construction costs if you don't have builder records
Plant and equipment (removable assets)
- Covers items that can be easily removed: carpets, blinds, air conditioners, hot water systems, ovens, dishwashers, smoke alarms
- Claimed using either diminishing value or prime cost method over the effective life of each asset
- For properties purchased from 9 May 2017 onward, plant and equipment deductions are limited to items the investor purchased new or items installed by the investor
- Items costing $300 or less can be written off immediately
- Depreciation is higher in the early years under the diminishing value method
Do you need a depreciation schedule?
Almost certainly. A depreciation schedule is a report prepared by a qualified quantity surveyor that estimates the deductible decline in value of both the building structure and the plant and equipment assets. It typically costs $500 to $800, the fee itself is tax deductible, and the schedule can identify thousands of dollars in annual deductions that most investors would otherwise miss entirely.
For properties built after September 1987, the capital works deduction alone on a $400,000 construction cost is $10,000 per year. That is money you are leaving on the table without a schedule.
Borrowing costs
The upfront costs of taking out an investment loan are deductible, but they don't work the same way as other expenses. Instead of claiming them in the year you pay them, borrowing costs over $100 are spread over five years or the life of the loan, whichever is shorter. If your total borrowing costs are $100 or less, you can claim the full amount immediately.
Here is where it gets missed: if you refinance, the unamortised portion of the original borrowing costs from the old loan can be claimed in the year you discharge it. And the new loan's borrowing costs start a fresh five-year spread. Many investors forget to claim this.
If you are considering refinancing an investment property, our investment property refinancing guide covers the process and what to look out for.
Repairs vs improvements: the line the ATO watches
This is the deduction area that trips up more investors than any other, and it is the one the ATO specifically flags in rental property audits. The rule is straightforward in theory: repairs are immediately deductible, improvements are not. In practice, the line is thinner than most people think.
Repairs and maintenance
- Restoring something to its original condition
- Replacing a broken window pane with like-for-like glass
- Fixing a leaking tap or burst pipe
- Repainting walls after tenant wear and tear
- Replacing a damaged section of guttering
- Patching damaged plasterboard
- Servicing an air conditioning unit
Improvements (capital expenses)
- Making part of the property better, more valuable, or extending its useful life
- Replacing an entire kitchen or bathroom
- Adding a new deck, pergola or carport
- Replacing timber floors with polished hardwood throughout
- Upgrading a hot water system from electric to solar
- Converting a garage into a habitable room
- Installing a new air conditioning system where none existed
If you carry out repairs and improvements at the same time, you need to separate the costs. You can only claim the repair portion immediately. The improvement portion gets added to the property's cost base and claimed over time as a capital works deduction at 2.5% per year.
One more trap: "initial repairs." If the property had existing damage when you bought it and you fix that damage, the ATO does not allow an immediate deduction. Pre-existing defects fixed after purchase are treated as capital, not repairs. That cracked bathroom tile you spotted at the inspection? Fixing it after settlement is an improvement in the ATO's eyes.
What you cannot claim
Not every cost associated with your investment property is deductible. Some expenses are capital in nature, some are private, and some are specifically excluded. Getting this wrong is one of the fastest ways to attract ATO attention.
The cost of buying the property and stamp duty on the purchase are capital expenses. They form part of the property's cost base for capital gains tax purposes when you eventually sell, but they are not deductible against rental income.
Only the interest on your investment loan is deductible. Paying down the principal is repaying borrowed money, not an expense of earning rental income.
If you personally paint the property or mow the lawn, you cannot claim a deduction for the value of your time. Materials you buy are deductible, but your labour is not.
If you use the property for personal purposes for any part of the year, you must apportion all expenses and only claim the portion relating to the rental period.
From 1 July 2019, you cannot claim deductions for holding costs on vacant land, even if you intend to build a rental property on it. An exception applies if the property was destroyed by natural disaster.
Conveyancing fees on purchase or sale, real estate agent commissions on sale, and marketing costs for selling the property are not rental deductions. They are factored into the CGT calculation.
If you rent to family at below-market rates, your deductions are limited to the actual rental income received. You cannot create an artificial loss by charging below-market rent.
From 1 July 2017, residential property investors can no longer claim travel expenses to inspect or maintain the property. This applies even if the travel was specifically for property-related purposes.
How deductions interact with negative gearing
When your total deductible expenses exceed your rental income in a given year, the property is negatively geared. The net rental loss can be offset against your other taxable income, such as salary or business income, which reduces your overall tax bill.
The actual dollar value of that tax saving depends on your marginal tax rate. The higher your income, the more each dollar of deductions saves you.
In this example, the investor's other income is reduced by $11,000. At a 37% marginal tax rate (taxable income between $135,001 and $190,000 in 2025-26), that loss saves approximately $4,070 in tax. At 45%, the saving is approximately $4,950.
Notice that $5,800 of those deductions came from depreciation, a non-cash claim. The investor's actual out-of-pocket loss is smaller than the tax loss. That gap is one of the core mechanics behind negative gearing. For a deeper explanation, see our negative gearing guide.
Record keeping the ATO expects
The ATO uses data matching to cross-check rental income from property managers, insurance companies, land title records and sharing economy platforms against what investors report. If your deductions look higher than the suburb average or your rental income looks lower than expected, the records are what protect you.
Keep records for at least five years after you lodge the return in which the deduction is claimed. For depreciation items, keep records for five years after you stop claiming the deduction. Digital copies are fine, but make sure they are legible and backed up.
Common investment property tax mistakes
The ATO publishes its compliance focus areas for rental properties every year, and the same mistakes keep appearing. Some cost investors money by overclaiming. Others cost money by underclaiming. Both are avoidable.
Claiming improvements as repairs
This is the single most common audit trigger. Replacing a broken tap is a repair. Replacing an entire bathroom vanity unit with an upgraded model is an improvement. The ATO uses contractor invoices to check, so vague descriptions like "bathroom work" invite scrutiny.
Ask your contractor to separate repair items from improvement items on the invoice.
Never getting a depreciation schedule
Many investors do not realise depreciation exists or assume it only applies to new properties. Even a 20-year-old property may still have capital works deductions available for another 20 years. A $600 schedule that identifies $8,000 in annual deductions pays for itself within a month of tax savings.
Get a depreciation schedule prepared, especially if the property was built after 1987.
Claiming interest on a redraw used for personal spending
If you redraw funds from your investment loan for a holiday or personal car, the interest on that redrawn amount is no longer deductible. The purpose of the borrowing determines the deduction, not the security. Mixed-purpose redraws create a permanent split in your loan that is difficult to unwind.
Keep investment borrowings separate from personal spending. Use an offset account instead of redrawing.
Claiming for periods the property was not available for rent
If the property sat empty while you renovated it for two months, or you used it as a holiday home for three weeks, you need to apportion your deductions. The ATO cross-matches property availability against deduction claims, and full-year claims on properties that were not available for rent the full year are flagged.
Only claim deductions for the period the property was rented or genuinely available for rent.
Forgetting to claim borrowing costs on a refinance
When you refinance, any unamortised borrowing costs from the original loan can be claimed in the year you discharge it. And the new loan generates a fresh set of borrowing costs to spread over the next five years. Many investors miss both.
Check whether you have unclaimed borrowing costs from your previous loan at each refinance.
Not keeping receipts for smaller expenses
A $250 pest treatment, a $180 plumber call-out, a $95 smoke alarm replacement. Individually they feel small. Over a year, they add up to real money. Without receipts, they are not claimable.
Photograph every receipt and file it digitally on the day you pay. Your future self will thank you.
