Investment Property Tax Deductions

Investment property is one of the most tax-effective assets in Australia. Understanding the deductions available can significantly improve your after-tax return — or even turn a cash-negative property into a net positive investment.

Negative Gearing

When your property costs (interest, maintenance, management fees) exceed rental income, the net loss can be deducted against your other income (salary, business profits, etc.). This is called negative gearing, and it's one of the cornerstones of Australian property investment.

Since the 2019 law changes, investors in newly constructed properties can claim travel-related property inspection costs — but those purchasing established properties no longer can.

Borrowing Expenses

Loan establishment fees, mortgage broker fees, valuation fees, and lender's mortgage insurance (LMI) are deductible over 5 years or the loan term, whichever is shorter. Stamp duty on the property purchase is not deductible — it's added to the cost base for CGT purposes.

Capital Works Deductions (Division 43)

Claim 2.5% per year of the original construction cost for buildings built after 15 September 1987. This applies to the structural elements: walls, roofs, foundations, and fixed fixtures. You need a quantity surveyor's depreciation schedule to calculate this.

Plant & Equipment (Division 40)

Carpets, blinds, air conditioners, hot water systems, and appliances can be depreciated. For properties purchased after 9 May 2017, you can only claim depreciation on new plant and equipment assets (not second-hand). A depreciation schedule from a qualified quantity surveyor is essential.

Repairs and Maintenance

Immediate deductions for repairs to restore the property to its original condition (fix a leaking tap, repair a broken window). Improvements (upgrading a kitchen, adding a deck) must be claimed as capital works at 2.5% per year. Initial repairs on a newly purchased property are usually capital in nature.

Other Deductible Expenses

• Property management fees
• Council rates and strata levies
• Land tax
• Insurance (building, contents, landlord)
• Water charges (if not passed on to tenant)
• Interest on investment loans
• Legal expenses for lease preparation (deductible over 5 years)

Capital Gains Tax on Sale

When you sell, any profit is subject to CGT. If you've held the property for more than 12 months, you're entitled to a 50% CGT discount. Depreciation claimed during ownership reduces the cost base, potentially increasing the capital gain — this is called "depreciation recapture."

The Depreciation Schedule

A depreciation schedule from a quantity surveyor costs $500–$800 but can generate thousands in deductions over the first 5 years. The cost of the schedule itself is also tax-deductible.

How Negative Gearing Works

Negative gearing is simple in concept: if the costs of owning an investment property — interest, rates, insurance, repairs, management fees — exceed the rental income in a year, the loss reduces your assessable income. For a taxpayer on the 37% marginal rate (income between $135,001 and $190,000 for 2025-26), every $1,000 of rental loss reduces their tax bill by $370. The property still needs to grow in value for the strategy to pay off, because the tax saving only softens the loss — it does not eliminate it.

The ATO data-matches rental income with property managers and platforms, and it checks your claims against its rental property benchmarks, which are published for every postcode. If your deductions look high relative to your rental income, expect questions. The most common audit trigger is claiming repairs on a newly purchased property — if the property needed fixing before it was rented out, those costs are capital in nature (depreciable or added to the cost base), not immediately deductible repairs.

What You Must Declare

• All rental income — including short-stay income from Airbnb and similar platforms, which is reported to the ATO automatically
• Rent received in advance — counted in the year you receive it, even if it covers a later period
• Non-monetary benefits — if a tenant pays for repairs instead of rent, the value is assessable
• Recovered expenses — if your insurance reimburses a claim you had deducted, the reimbursement is income

2025-26 Property Investor Checklist

1. Order a depreciation schedule from a quantity surveyor if you don't have one — the $500–$800 cost is deductible and typically pays for itself many times over.
2. Separate repairs from improvements in your records; capital works (Division 43) are claimed at 2.5% per year over 40 years, while plant and equipment (Division 40) follow their own effective-life rates.
3. Check your loan statements — borrowing costs over $100 are spread over five years or the loan term, whichever is shorter.
4. Keep all records for five years after you lodge the relevant return — and keep purchase/sale documents for the CGT records.
5. If you sell, remember the 50% CGT discount applies only to assets held for more than 12 months, and your main residence exemption protects your own home, not the investment.