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

Owning an investment property comes with a long list of costs, and most of them are tax deductible. But not all of them, not all at once, and — for an established property bought after 12 May 2026 — not always in a way that reduces tax on your wages.

This guide sets out what the ATO lets you claim, when, and the mistakes that most often catch investors out. It's general information; your tax agent should confirm what applies to you.

The basic rule

You can generally claim expenses you incur to earn rental income, for the period the property is rented out or genuinely available for rent. If you use the property yourself for part of the year, or it's not really on the market, you have to apportion your claims.

Deductions fall into three groups:

1. Claimable in the year you pay — most running costs
2. Claimable over several years — borrowing costs, the building, fixtures and fittings
3. Not claimable — but some of these still count when you sell

Costs you can claim in the year you pay them

• Interest on the loan, for the part of the loan used to buy or maintain the rental property
• Council rates, water charges and land tax, if you pay them
• Strata or owners corporation levies for ongoing administration and maintenance
• Landlord and building insurance
• Property management and letting fees, and advertising for tenants
• Repairs and maintenance that restore something to its original condition
• Gardening, cleaning and pest control
• Bank fees on the investment loan

Interest: what the money was used for is what counts

Interest is usually the biggest deduction, and the ATO's test is about what the borrowed money was used for — not which property secures the loan.

If you borrow against your home to buy an investment property, the interest on that borrowing can be deductible. If you redraw money from the investment loan to pay for a holiday, the interest on that redrawn amount isn't, and you'll have to apportion from then on. That's why investors usually keep investment borrowing in its own loan split and never mix private spending into it. See offset account or redraw?

Borrowing expenses: claimed over 5 years

The costs of setting up the loan aren't claimed all at once. According to the ATO, they include:

• loan establishment fees
• lender's mortgage insurance (LMI)
• title search fees your lender charges
• costs of preparing and filing mortgage documents
• mortgage broker fees
• valuation fees required for loan approval

You claim them over 5 years, or over the term of the loan if that's shorter. If the total is $100 or less, you can claim it all in the year you pay it.

The building: capital works deductions

The cost of constructing the building — and of structural improvements like an extension or a new deck — can be written off gradually. For most residential rental properties, that's 2.5% of the construction cost each year, over 40 years.

• It's based on what it cost to build, not what you paid to buy. If you don't know, a quantity surveyor can estimate it.
• Deductions you claim reduce your cost base, which increases your capital gain when you sell.

Fixtures and fittings: the 2017 rule

Items that wear out — hot water systems, carpets, blinds, ovens, air conditioners — are depreciating assets, and you can generally claim their decline in value over their effective life.

But there's a big exception. For a residential rental property, you can't claim the decline in value of second-hand assets — ones that were already there when you bought — unless you bought them before 7:30pm on 9 May 2017 and installed them before 1 July 2017.

In practice, if you buy an established property today, the fittings that came with it usually can't be depreciated. New items you buy and install yourself can be.

The rule doesn't apply if you carry on a business of letting rental properties, or the owner is an excluded entity such as a company or a super fund that isn't an SMSF. The full list is on the ATO page in the sources below.

This is one reason depreciation claims on a brand-new property tend to be much larger. See new build or established?

Repairs versus improvements

The difference decides whether you claim a cost now or over decades.

The trap is initial repairs. Fixing defects that existed when you bought the property isn't a deductible repair, even if it looks like one.

What you can't claim

• The purchase price and stamp duty on the purchase. These form part of your cost base for CGT instead.
• Principal repayments on the loan. Only interest is deductible.
• Travel to inspect or maintain the property. Since 1 July 2017, individuals can't claim travel for a residential rental property unless they're in the business of letting properties.
• Costs for any period you use the property yourself, or when it isn't genuinely available for rent.

A deduction isn't a refund: the 2027 change

Everything above is still deductible against rental income. What changed in the 2026 Budget is what happens to a net loss — when the deductions add up to more than the rent.

For an established residential property bought from 7:30pm AEST on 12 May 2026, from 1 July 2027 a net loss can't reduce tax on your wages or other income. It's carried forward, to be used against residential property income or a capital gain in a later year.

The full detail is in negative gearing after the 2026 Budget.

Keep the paperwork

The ATO asks you to keep rental records for 5 years from the date you lodge the relevant tax return. For anything that affects CGT — the contract, stamp duty, improvement receipts — keep records for 5 years after you sell. If you're carrying forward losses, keep the records that show how you calculated them.

A tax depreciation schedule from a quantity surveyor, prepared when you buy, makes capital works and depreciation claims much easier to support.