Investment Property Tax Deductions Australia: Every Expense You Can Claim in 2026

The average Australian property investor leaves thousands in unclaimed deductions on the table every year. Not because the expenses don't qualify — but because they don't know the full list, confuse repairs with improvements, or skip depreciation entirely.

This guide covers every investment property tax deduction available for the 2025-26 financial year: immediately deductible expenses, depreciation deductions claimed over time, what you cannot claim, the critical repairs-vs-improvements distinction, and the ATO's known audit focus areas heading into tax season.

Note: The negative gearing changes announced in the May 2026 Budget affect established properties purchased after 7:30pm AEST 12 May 2026 from 1 July 2027. This guide covers deductions under the current rules that apply to your 2025-26 return.

Immediately deductible expenses (claim in full this year)

These expenses are deducted in full in the income year they're paid, as long as the property is rented or genuinely available for rent.

Loan interest

Interest on money borrowed to purchase, renovate, or maintain the investment property is the largest deduction most investors claim. Only the interest component is deductible — principal repayments reduce your loan balance but are not tax deductible.

If you redraw from the loan for personal purposes (a holiday, a car), interest on the redrawn amount is no longer deductible. Keep redraw and offset accounts separate and document the purpose of any funds drawn.

Property management and letting fees

Property management fees are fully deductible. This includes:

Ongoing management fees (typically 5–10% of gross rental income)
Letting fees for finding new tenants
Lease renewal fees
Routine inspection fees
Rent collection fees

If you self-manage, you cannot claim a notional management fee — only actual out-of-pocket costs.

Council rates, water rates, and land tax

Council rates and water rates are deductible in the year paid. Land tax is also deductible where the property is held for income-producing purposes. Note that land tax rates and thresholds vary significantly by state — check your state revenue office for the applicable rate.

Landlord insurance

Building insurance, contents insurance (for furnished properties), and landlord insurance are all deductible. Public liability insurance is also deductible if you hold it as a property owner rather than through a body corporate.

Body corporate fees and strata levies

Regular body corporate (owners corporation) administration and maintenance levies are immediately deductible. However, special levies paid into a capital works fund for building improvements are not immediately deductible — they form part of the cost base for CGT or are depreciated via Division 43.

Advertising for tenants

Costs for listing the property on rental platforms (Domain, realestate.com.au), including photography, are immediately deductible.

Pest control and garden maintenance

Pest control inspections and treatment, regular lawn mowing, and garden maintenance required to maintain the property are deductible.

Repairs and maintenance

Genuine repairs — fixing something that has broken or deteriorated to restore it to its original condition — are fully deductible. See the critical repairs-vs-improvements section below for the rules that trap the most investors.

Legal expenses

Legal costs related to the rental activity are deductible — for example, costs to recover unpaid rent, evict a tenant, or defend a rental income dispute. Legal costs to acquire or sell the property are not deductible (they form part of the cost base).

Accounting and tax agent fees

Fees paid to prepare your tax return (including the rental schedule) are deductible. The prior year's tax agent fee is claimed in the current year.

Borrowing costs

Loan establishment fees, mortgage broker fees, stamp duty on the mortgage (not the property), lenders mortgage insurance, and title search fees are not deducted immediately — they are amortised over 5 years or the loan term (whichever is shorter). If the borrowing costs total under $100, claim them in full in year one.

Depreciation: the most-missed deduction

Depreciation is a non-cash deduction for the wear and tear on the building structure and its fittings. It requires no cash outlay in the current year — it's a paper deduction that reduces your taxable income purely because the asset is ageing.

Two separate divisions of the tax law cover different types of depreciation:

Division 43: Capital works (building structure)

Division 43 covers the structural components of the building: walls, roofing, floor structure, windows, doors, wiring, plumbing, and similar fixed elements.

The standard deduction rate is 2.5% per year for buildings constructed after 27 February 1992 (or 4% for commercial buildings or residential buildings constructed between 18 July 1985 and 15 September 1987).

How it works:

The deductible base is the original construction cost of the building (not the purchase price)
If you don't know the construction cost, you need a quantity surveyor to estimate it
You can only claim capital works deductions on buildings constructed after 18 July 1985
Claim continues for 40 years from the date of construction

Example: A house built in 2010 with original construction cost of $280,000.

Annual Division 43 deduction: $280,000 × 2.5% = $7,000/year
Over 10 years of ownership: $70,000 in non-cash deductions

This is often the largest single deduction a property investor has, and it requires nothing more than a quantity surveyor's report.

Division 40: Plant and equipment (depreciable assets)

Division 40 covers removable items within the property: carpet, blinds, dishwasher, oven, air conditioning units, hot water systems, ceiling fans, and other fittings.

Each item has an ATO-determined "effective life" and is depreciated over that period. Two methods apply:

Prime cost: straight-line, same deduction each year
Diminishing value: higher deduction in early years, declining over time

Important restriction (from 1 July 2017): Second-hand residential properties have Division 40 restrictions. If you purchased a second-hand residential investment property after 9 May 2017, you cannot claim Division 40 depreciation on the plant and equipment that existed in the property at purchase. You can only claim on:

New items you install yourself after settlement
Division 43 (building structure) — unaffected by this rule

This restriction doesn't apply to new properties or commercial properties.

Asset	Effective life	Annual deduction (prime cost) on $5,000 asset
Carpet	8 years	$625/year
Dishwasher	12 years	$417/year
Air conditioning unit	10 years	$500/year
Hot water system	12 years	$417/year
Ceiling fan	10 years	$500/year
Oven	12 years	$417/year
Blinds/curtains	6 years	$833/year

Use our Rental Income Tax Calculator to model the impact of deductions (including depreciation) on your taxable income and refund.

Repairs vs improvements: the distinction that costs investors most

This is the area the ATO focuses on most heavily and where investors most frequently overclaim.

Repairs (immediately deductible): Work that restores an existing item to its original working condition without improving it. Examples:

Replacing a broken fence paling with the same material
Repainting internal walls to the same colour and standard
Fixing a leaking tap or pipe
Replacing broken glass in windows
Patching damaged gutters

Improvements (not immediately deductible): Work that makes the property better than it was, extends its useful life, or upgrades to a higher standard. Examples:

Replacing a timber deck with a new composite deck (upgrade in standard)
Converting a garage into a bedroom
Installing a new kitchen where there wasn't one before
Replacing a fence with a new fence in a different material

Improvements are either:

Added to the cost base (reducing your eventual capital gain), or
Depreciated via Division 43 (if structural) or Division 40 (if plant and equipment)

The grey zone: initial repairs The ATO does not allow deductions for repairs to a property you've just purchased where the damage existed at the time of purchase. These are considered capital in nature. If you buy a property and immediately fix a roof that was already damaged when you bought it, that's an initial repair — not immediately deductible.

What you cannot claim

Expense	Reason
Stamp duty on purchase	Added to cost base (reduces eventual CGT)
Legal fees on purchase or sale	Added to cost base
Principal loan repayments	Repaying debt, not a business cost
Costs before property was available for rent	No income-producing purpose
Personal use proportion	Must apportion for any personal use periods
Travel to inspect the property	Removed as a deduction from 1 July 2017
Decline in value on pre-owned plant & equipment (second-hand purchases post May 2017)	Division 40 restriction on second-hand residential

PAYG variation: get your tax benefit during the year, not at tax return time

Most investors wait until lodging their tax return (July–October) to get their deduction back as a tax refund. But if you're negatively geared, you don't have to wait.

A PAYG Withholding Variation (ATO Form NAT 2036) allows your employer to reduce the tax withheld from your pay throughout the year, based on your estimated rental loss. Instead of getting a $12,000 refund in August, you receive an extra $1,000 per month in your pay cheque.

How to apply:

Estimate your rental income and all deductible expenses for the year
Complete the PAYG withholding variation application on the ATO website or through your tax agent
Submit by 28 April for the variation to apply from the following financial year (or at any time for the current year, effective from the next pay cycle after ATO approval)
The ATO typically processes applications within 28 days
Give the approved variation notice to your employer's payroll department

The variation lasts for one income year. You must renew it annually and adjust the estimate if your circumstances change materially (new loan, property sold, etc.).

Worked example:

Estimated rental income: $26,000
Estimated deductible expenses (interest, rates, insurance, management, depreciation): $44,000
Estimated rental loss: $18,000
Marginal tax rate: 37%
Estimated tax saving from rental loss: $6,660
Monthly reduction in PAYG withholding: $555/month

That's $555 extra in your pay cheque each month instead of one lump refund after July.

ATO audit focus areas for 2026

The ATO uses data matching from property managers, banks, state land registries, and rental platforms to cross-reference investor returns. Key areas generating ATO attention in 2025-26:

Claiming interest on amounts not used for the property. If you've redraw from your mortgage for personal use, the ATO expects you to apportion and only claim the investment portion.
Travel to inspect the property. The deduction was removed in 2017. Any travel claim on a residential property is an immediate audit flag.
Undeclared rental income. The ATO matches property manager data, bond authority records, and Airbnb/Stayz reporting. Income not declared doesn't mean income not found.
Overclaiming for private-use periods. If you used the property yourself, you must apportion deductions accordingly — interest, rates, insurance, and depreciation all reduce pro-rata.
Claiming capital improvements as repairs. Replacing an old kitchen with a new one is not a repair. The ATO scrutinises large single-invoice "repair" claims closely.
Incorrect depreciation claims on second-hand properties. Post-May 2017 purchases of second-hand residential properties cannot claim Division 40 depreciation on existing plant and equipment. This remains a frequent error.
Borrowing costs claimed in full in year one. Unless total borrowing costs are under $100, they must be amortised over 5 years or the loan term.

Getting a quantity surveyor report

A quantity surveyor (QS) report is the tool that unlocks Division 43 and (for eligible properties) Division 40 depreciation. Without a QS report, most investors have no way of knowing the original construction cost of the building.

A QS report typically costs $600–$900 for a standard residential property. It establishes:

The original construction cost (Division 43 base)
An itemised schedule of all plant and equipment (Division 40 schedule)
An annual depreciation schedule showing deductions over the asset's life

The report pays for itself in most cases — a single year of Division 43 deductions on a property built after 1992 often exceeds the report cost. The fee for the report itself is also tax deductible in the year paid.

Frequently asked questions

What investment property expenses are tax deductible in Australia?

Immediately deductible expenses include loan interest, council rates, land tax, water rates, property management fees, insurance, advertising, body corporate fees, repairs and maintenance, pest control, and accounting fees. Depreciation deductions (Division 43 for the building structure and Division 40 for plant and equipment) are claimed over time rather than immediately. Borrowing costs are spread over 5 years.

Can I claim depreciation on a second-hand investment property?

From 1 July 2017, if you purchased a second-hand residential property after 9 May 2017, you cannot claim Division 40 (plant and equipment) depreciation on the existing fittings. You can still claim Division 43 (building structure) deductions if the property was built after 18 July 1985, and you can claim Division 40 on any new items you install after purchase.

What is the difference between repairs and improvements for tax purposes?

Repairs restore an existing item to its original working condition — they're immediately deductible. Improvements make the property better than it was, extend its useful life, or upgrade to a higher standard — they're not immediately deductible and must be depreciated or added to the cost base. Initial repairs to damage that existed at purchase are also not immediately deductible.

Can I claim travel to inspect my rental property?

No. The ability to claim travel expenses for inspecting a residential rental property was removed from 1 July 2017. This restriction applies regardless of how far away the property is or how many properties you own. Travel to commercial properties may still be deductible in some circumstances.

What is a PAYG withholding variation for property investors?

A PAYG withholding variation is an ATO application that reduces the income tax withheld from your pay cheque throughout the year, based on your estimated rental loss. Instead of waiting until your tax return to receive a lump-sum refund, you get an extra amount each pay period. You apply through the ATO website or your tax agent, and it takes effect from the next pay cycle after approval.

Is stamp duty on an investment property tax deductible?

No — stamp duty paid on purchasing an investment property is not immediately deductible. It forms part of the cost base of the property for CGT purposes, which reduces your capital gain when you eventually sell. This is different from borrowing costs (which are spread over 5 years) and ongoing expenses (which are immediately deductible).

Do I need a quantity surveyor report for depreciation?

For most properties, yes — you need a quantity surveyor report to establish the original construction cost (the Division 43 base) if you don't already have it from the developer or builder. The report typically costs $600–$900 and the fee is tax deductible. It pays for itself quickly: a typical report unlocks $5,000–$15,000+ in annual depreciation deductions depending on the property.

This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.