Kee › Rental property tax guide › Rental deductions
What can you claim on a rental property?
Rental property costs fall into three groups: claim this year, claim over several years, and can't claim. Get the groups right and your refund is bigger, and you're covered if the ATO asks.
- Claim this year: interest, agent fees, council rates, water, land tax, strata, insurance, repairs
- Claim over time: capital works at 2.5% a year, borrowing costs over 5 years
- Can't claim: travel to the property, fixing damage that was there when you bought, improvements, private use
1. Claim this year
| Expense | Watch out for |
|---|---|
| Loan interest | Only the part used for the rental. Interest on money redrawn for private use is not deductible |
| Agent fees, commission, advertising | All on your property manager's annual statement |
| Council rates, water, land tax | If the tenant pays the water, you can't claim it |
| Strata admin and sinking fund levies | A special levy for a specific capital improvement is not deductible straight away |
| Landlord and building insurance | |
| Repairs and maintenance | Restoring something to how it was, such as fixing a leaking pipe, patching a wall or replacing a few broken tiles |
| Cleaning, gardening, pest control, depreciation report fee |
2. Claim over several years
Capital works (the building)
For residential buildings where construction started after 15 September 1987, you can claim 2.5% of the construction cost each year, for up to 40 years. Renovations and extensions are claimed at 2.5% too. A quantity surveyor's depreciation schedule works out the amounts.
Appliances, carpets and other plant and equipment
Items you buy new can be depreciated over their effective life. But if you bought a second-hand residential property after 7:30pm on 9 May 2017, the items that came with it can't be depreciated.
Borrowing costs
Establishment fees, LMI, valuation and broker fees: if they total more than $100, claim them over 5 years (or the loan term if that's shorter). If you pay the loan off early, claim the rest in that year.
3. Can't claim
- Travel to inspect, maintain or collect rent: not deductible since 1 July 2017, and not added to the cost base
- Initial repairs: fixing damage that existed when you bought the property isn't deductible straight away. It may be claimed at 2.5% a year or added to the cost base
- Improvements: replacing a whole kitchen or adding a room is a capital cost, claimed at 2.5% a year
- Vacant land holding costs: since 1 July 2019, interest, rates and land tax on vacant land are generally not deductible
- Private use: if the property was rented for only part of the year, or you rent out one room, split costs by time or floor area
4. Negative gearing changes from 2027–28
Today, a rental loss (costs more than rent) can be taken off your salary and other income, which lowers your tax. That's negative gearing.
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, passed in June 2026, changes this:
- From the 2027–28 income year, for an established dwelling bought under a contract signed after 7:30pm (Canberra time) on 12 May 2026, a rental loss can't be taken off your salary. It's carried forward to later years instead
- Properties bought before that time are not affected
- New dwellings are not affected
Some details, such as exactly what counts as a new dwelling, are in a follow-up bill (Tax Reform No. 3 Bill 2026) that is still before Parliament. Before you buy, ask your accountant which group the property falls into.
Common questions
Is replacing a hot water system a repair or an improvement?
Replacing a broken one with a similar one is usually a repair, claimed this year. Upgrading to a clearly better system may be an improvement. It depends on the facts, so check with your accountant.
My loan paid for the rental and for renovating my home. How is the interest split?
By what the money was used for. Interest on the part used for the rental is deductible; interest on the part used for your home is not. Keep a record of what each drawdown was for.
Can I claim depreciation without a depreciation schedule?
Capital works deductions need evidence of the construction cost, so most owners get a quantity surveyor's schedule. The fee is deductible, and one report usually lasts many years.
I bought before May 2026. Can I still negatively gear?
Yes. The new rule only applies to established dwellings bought under a contract signed after 7:30pm on 12 May 2026. Earlier purchases carry on as before.
Sources
- ATO · Rental properties 2025 – rental expenses: https://www.ato.gov.au/forms-and-instructions/rental-properties-2025/rental-expenses
- ATO · Work out the category of your rental expense: https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/work-out-the-category-of-your-rental-expense
- ATO · Capital works deductions: https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/capital-expenses/work-out-your-capital-works-deductions
- ATO · Rental properties and travel expenses: https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/rental-properties-and-travel-expenses
- ATO · Deductions for vacant land: https://www.ato.gov.au/individuals-and-families/investments-and-assets/land-vacant-land-and-subdividing/deductions-for-vacant-land
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026: https://www.legislation.gov.au/C2026A00049/asmade/text
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