Tax deductions are one of the core financial advantages of property investment in Australia. Claimed correctly, they can transform a negatively geared property into a manageable cashflow proposition and significantly reduce your annual tax bill. Claimed incorrectly, they can trigger an ATO audit, penalties, and years of amended returns.
This guide covers every major tax deduction available to property investors in 2026, the rules around depreciation, and the common mistakes that cost investors thousands.
How Property Tax Deductions Work
When you own an investment property, the ATO allows you to claim deductions for expenses incurred in earning rental income. These deductions reduce your taxable income, which reduces the tax you pay. If your total deductions exceed your rental income, the property is negatively geared—and that loss can be offset against your salary or other income.
For a detailed comparison of negative gearing versus positive cashflow strategies, see our negative gearing vs positive cashflow guide.
Deductions You Can Claim Immediately
These expenses are deductible in full in the financial year they are incurred:
Loan Interest
Interest on your investment property loan is your single largest tax deduction. This includes interest on the loan used to purchase the property and, in some cases, interest on a loan used to fund renovations. Only the interest portion of your repayments is deductible—not the principal.
Important: If you refinance your home loan and use the equity to purchase an investment property, only the portion of interest attributable to the investment loan is deductible. Keep your investment and personal loans separate to avoid ATO issues.
Property Management Fees
Fees paid to a property manager for finding tenants, collecting rent, arranging maintenance, and managing the property. This is fully deductible.
Council Rates and Water Charges
Council rates and water rates for the periods the property is rented or genuinely available for rent are fully deductible.
Insurance
Landlord insurance, building insurance, and contents insurance premiums for the investment property are all deductible. Note that mortgage protection insurance may also be deductible if it specifically relates to the investment property loan.
Repairs and Maintenance
Costs incurred to repair or maintain the property in its current condition are deductible immediately. This includes fixing a leaking tap, replacing broken window panes, repainting walls in the same colour, and repairing storm damage.
Critical distinction: There is a difference between a repair and an improvement. Replacing a damaged kitchen benchtop with a like-for-like equivalent is a repair (immediately deductible). Upgrading that benchtop to stone or installing an entirely new kitchen is an improvement (claimed over time via depreciation). The ATO scrutinises this distinction closely.
Advertising for Tenants
The cost of advertising the property for rent, whether online or in print, is fully deductible.
Body Corporate Fees (Strata Levies)
If your investment property is a unit, townhouse, or apartment, body corporate fees are deductible. This includes both the administration fund and sinking fund contributions.
Legal Expenses
Legal costs associated with preparing lease agreements, evicting tenants, or defending rental disputes are deductible. However, legal costs associated with purchasing or selling the property are not deductible (they form part of the cost base for capital gains tax purposes).
Pest Control
Professional pest control services for the investment property are fully deductible.
Accountant and Tax Agent Fees
Fees paid to your accountant or tax agent for preparing your tax return (the portion relating to the investment property) are deductible.
Depreciation: Capital Works and Plant & Equipment
Depreciation is a non-cash deduction that allows you to claim the wear and tear on the building structure and its fixtures and fittings over time. It’s one of the most valuable deductions available to property investors, yet many investors either don’t claim it or claim it incorrectly.
Capital Works Deductions (Division 43)
The building structure itself—walls, roof, floors, doors, windows—can be depreciated at 2.5% per year over 40 years from the date of construction. For a property with a construction cost of $300,000, that’s a $7,500 annual deduction—$7,500 less taxable income every year, for 40 years, without spending a cent.
To claim capital works deductions, you need to know the original construction cost. For newer properties, this is usually available from the developer. For older properties, a quantity surveyor can prepare a tax depreciation schedule that estimates the construction cost based on an inspection of the property.
Plant and Equipment Deductions (Division 40)
Removable or mechanical items within the property—ovens, dishwashers, carpets, blinds, hot water systems, air conditioning units—are depreciated at their individual effective life rates as determined by the ATO.
Important change from 2017: Since 1 July 2017, investors purchasing existing (second-hand) residential properties can no longer claim plant and equipment depreciation on items that were in the property at the time of purchase. You can only claim depreciation on plant and equipment items that you install. This rule does not apply to new properties or to capital works deductions.
This change makes newer properties and off-the-plan purchases particularly attractive from a tax perspective, as you can claim both capital works and plant and equipment deductions. NDIS properties, which are typically purpose-built with significant fit-outs, can also offer strong depreciation benefits—see our NDIS property investment guide for more detail.
Getting a Tax Depreciation Schedule
A tax depreciation schedule is prepared by a qualified quantity surveyor and costs between $600 and $800 for a standard residential property. The schedule covers both capital works and plant and equipment deductions over the property’s remaining depreciable life. The cost of the schedule itself is tax deductible.
Every investment property owner should have a depreciation schedule. The deductions identified typically outweigh the cost of the schedule many times over in the first year alone.
What You Cannot Claim
The ATO is clear about expenses that are not deductible:
- Acquisition and disposal costs — Stamp duty, conveyancing fees, and selling agent commissions are not deductible (they form part of the capital gains tax calculation)
- Principal loan repayments — Only the interest component of your mortgage repayments is deductible
- Improvements to the property — Must be depreciated over time, not claimed immediately
- Expenses for periods the property is not available for rent — If you use the property for personal purposes, deductions must be apportioned
- Travel to inspect your investment property — Since 1 July 2017, travel expenses related to inspecting, maintaining, or collecting rent from a residential investment property are no longer deductible for most investors
Common Mistakes That Trigger ATO Audits
Rental property deductions are one of the ATO’s top audit targets. Here are the most common errors:
- Claiming for periods the property was not available for rent — If your property was vacant and you were not genuinely trying to find a tenant, you cannot claim deductions for that period.
- Confusing repairs with improvements — As noted above, upgrading a property is not the same as repairing it. The ATO’s focus on this distinction has intensified in recent years.
- Claiming initial repair costs on a newly purchased property — If you buy a property and immediately fix defects that existed at the time of purchase, those are considered improvements, not repairs—even if they are technically restoring the property to a functional condition.
- Not apportioning deductions for mixed-use properties — If you use the property for both personal and rental purposes (e.g., a holiday home you also rent out), deductions must be apportioned based on actual rental vs personal use days.
- Failing to keep records — The ATO requires you to keep records of all income and expenses for five years. Bank statements, invoices, receipts, and property manager statements should all be retained.
Building Tax Efficiency into Your Portfolio
Tax deductions should be one consideration in your overall investment strategy, not the driving factor. The best investment properties are those that deliver strong capital growth and reliable rental income—the tax benefits then enhance an already sound investment. Building a diversified portfolio that balances growth, yield, and tax efficiency across multiple properties is the path to long-term wealth. For more on this approach, see our guide on how to build a property portfolio.
Get Expert Help with Your Investment Strategy
At Strategic Buys, we help investors identify properties that align with their financial goals—including tax efficiency. While we always recommend working with a qualified tax accountant for specific tax advice, we can help ensure your property selection maximises the deductions available to you.
