Owning an investment property in Australia comes with significant tax benefits — if you know what to claim. Each year, the ATO estimates that property investors miss out on thousands of dollars in legitimate deductions simply because they don't know what's available or don't keep proper records.

This guide covers every investment property tax deduction you can claim in 2025, how to claim them correctly, and the common mistakes that trigger ATO audits.

What Can You Claim on an Investment Property?

As a property investor, you can claim deductions for any expense directly related to earning rental income. The ATO divides these into three categories:

Immediate deductions — expenses you can claim in full in the year you incur them
Deductions over several years — borrowing costs spread over 5 years, and depreciation claimed annually
Capital expenses — costs that form part of the property's cost base for capital gains tax purposes

The key rule: the property must be rented out or genuinely available for rent. If the property is vacant and you're not actively trying to find tenants, you can't claim deductions for that period.

Immediate Deductions (Claim This Year)

These are the rental property expenses you can claim in the same financial year you pay them.

Property Management and Maintenance

Property management fees — typically 5-10% of rental income
Letting fees — the fee to find new tenants
Advertising for tenants — online listings, signage, photography
Repairs and maintenance — fixing existing damage or wear (not improvements)
Cleaning — between tenants or regular cleaning services
Gardening and lawn mowing — if included in the tenancy
Pest control — inspections and treatments

Council and Utility Costs

Council rates — the full amount for the rental period
Water rates and charges — including usage if you pay it
Land tax — deductible in the year it's paid
Body corporate fees — strata levies and special levies
Emergency services levy — where applicable

Insurance and Legal

Landlord insurance — building, contents, and landlord protection
Building insurance — if separate from landlord policy
Legal expenses — for lease preparation, disputes, or evictions
Quantity surveyor fees — the cost of a depreciation schedule (claimed in the year paid)

Financial Costs

Loan interest — the biggest deduction for most investors
Bank fees — account keeping fees on the loan account
Mortgage discharge fees — when refinancing the investment loan

Administrative Costs

Tax agent fees — for preparing the rental portion of your return
Stationery and postage — related to the rental property
Phone and internet — the portion used for property management

Deductions Over Time (Depreciation & Borrowing Costs)

Some expenses can't be claimed immediately — they're spread over multiple years.

Borrowing Costs (Spread Over 5 Years)

When you take out an investment loan, the establishment costs are deducted over 5 years (or the loan term if shorter):

Loan application fees
Mortgage broker fees
Lender's mortgage insurance (LMI)
Title search fees
Valuation fees (required by the lender)
Mortgage registration fees
Stamp duty on the mortgage (not the property)

Example: You pay $3,000 in borrowing costs. You claim $600 per year for 5 years. If you sell or refinance in year 3, you can claim the remaining balance in that year.

Depreciation (Division 43 — Capital Works)

If your property was built after 15 September 1987, you can claim 2.5% of the construction cost annually for 40 years. This covers the building structure:

Walls, roof, floors
Built-in cupboards and wardrobes
Kitchen and bathroom fixtures
Driveways and fencing (built after 27 February 1992)

Example: A property built in 2010 for $400,000 (construction cost, not land) allows a $10,000 deduction each year.

Depreciation (Division 40 — Plant and Equipment)

Removable fixtures and fittings depreciate over their effective life:

Carpet and blinds
Hot water systems
Air conditioning units
Dishwashers and ovens
Smoke alarms
Light fittings

Important change (May 2017): If you purchased a second-hand property after 9 May 2017, you can only claim plant and equipment depreciation on items you purchase and install yourself — not items already in the property.

Getting a Depreciation Schedule

A depreciation schedule is essential to maximise these deductions. A qualified quantity surveyor inspects your property and produces a 40-year schedule of claimable depreciation.

Cost: $400–$800 (fully tax-deductible)

Worth it? Almost always. Most schedules identify $5,000–$15,000 in first-year deductions alone.

What You Can't Claim

The ATO specifically disallows these expenses:

Acquisition costs — stamp duty on purchase, conveyancing, building inspections (these form part of your cost base for CGT)
Costs before the property is available for rent — renovations to prepare for first tenant
Improvement costs — anything that improves the property beyond its original condition (these are capital works, not repairs)
Private use portion — if you use the property yourself for any period
Expenses paid by tenants — you can't claim what you didn't pay
Travel to your rental property — since 1 July 2017, individual investors cannot claim travel costs for inspections, repairs, maintenance, or collecting rent. Only corporate tax entities or those genuinely carrying on a business of letting properties (not just owning a few rentals) can claim travel.
Loan principal repayments — only interest is deductible

Repairs vs Improvements: The Critical Difference

This is where many investors get caught:

Repairs (deductible immediately):

Replacing broken glass
Fixing a leaking tap
Patching holes in walls
Repainting in the same colour

Improvements (capital works, depreciated over time):

Replacing a kitchen (even if old one was functional)
Adding a new bathroom
Installing air conditioning where none existed
Renovating before the first tenant

The test: Does it restore the property to its original condition, or does it make it better than before?

Common Mistakes the ATO Flags

The ATO has identified over $1 billion in incorrect rental property claims. Here's what triggers audits:

1. Claiming on Properties Not Genuinely Available for Rent

If your holiday house is only "available" for rent during off-peak times, or your asking rent is unrealistically high, the ATO will deny deductions.

2. Overclaiming Interest

If you refinance and use some funds for private purposes (holiday, car), you must apportion the interest. Only interest on the investment portion is deductible.

3. Claiming Initial Repairs as Immediate Deductions

Fixing problems that existed when you bought the property is a capital expense, not a repair. You can't immediately deduct the cost of fixing the previous owner's neglected maintenance.

4. Incorrect Depreciation on Second-Hand Properties

Since May 2017, you can't claim plant and equipment depreciation on items that were in a second-hand property when you bought it. Many investors (and some accountants) still get this wrong.

5. Claiming Without Records

No receipt = no deduction. The ATO can request records going back 5 years.

How to Keep Records for Tax Time

Good record keeping is the difference between claiming everything you're entitled to and leaving money on the table.

What to Keep

Rental statements from your property manager
Loan statements showing interest charged
Receipts for all expenses (digital is fine)
Invoices from tradespeople
Insurance policies and renewal notices
Council and water rates notices
Body corporate statements
Depreciation schedule from your quantity surveyor

How Long to Keep Records

5 years from the date you lodge your tax return
For CGT purposes — keep purchase records for as long as you own the property, plus 5 years after you sell

Making It Easy

Tracking rental income and expenses manually is tedious and error-prone. Most investors either:

Use a spreadsheet (time-consuming, easy to miss deductions)
Hand everything to their accountant (expensive, no visibility during the year)
Use property investment software that tracks everything automatically

Propperly tracks all your rental income and expenses automatically via bank feeds, categorises transactions for tax, and generates ATO-ready reports. Try it free →

Negative Gearing: When Deductions Exceed Income

If your total deductions exceed your rental income, your property is negatively geared. This loss reduces your taxable income from other sources (like your salary), potentially saving you tax.

Example:

Salary: $150,000
Rental income: $25,000
Rental expenses (including interest and depreciation): $35,000
Rental loss: $10,000
Taxable income: $140,000

At the 37% marginal rate (which applies to income between $135,001 and $190,000), this $10,000 loss saves $3,700 in tax.

However, negative gearing means you're still losing money overall — you're just losing less after the tax benefit. The strategy only works if capital growth eventually outweighs the accumulated losses.

Use Propperly's Tax Position Dashboard to see your real-time gearing status across your entire portfolio →

FAQ: Investment Property Tax Deductions

Can I claim deductions if my property is vacant?

Yes, if the property is genuinely available for rent and you're actively seeking tenants. You cannot claim if the property is vacant by choice.

Can I claim the full interest if I live in the property part-time?

No. You must apportion deductions based on the percentage of time it's rented vs privately used.

Do I need a depreciation schedule?

Technically no, but you'll almost certainly miss deductions without one. The schedule cost is tax-deductible and typically pays for itself many times over.

Can I claim travel to my interstate rental property?

No. Since 1 July 2017, individual property investors cannot claim travel expenses to residential rental properties — regardless of the purpose (inspections, repairs, collecting rent, meeting tradespeople). This applies even if the property is interstate. Only corporate entities or those carrying on a genuine business of letting properties can claim travel.

What if I forgot to claim something in a previous year?

You can amend tax returns going back 2 years (sometimes 4 years in certain circumstances). Talk to your accountant.

Summary: Maximise Your Deductions

Claim everything you're entitled to — use this guide as a checklist
Get a depreciation schedule — especially for properties built after 1987
Keep meticulous records — digital is fine, but keep everything
Understand the repair vs improvement distinction — get it wrong and you'll trigger an audit
Track your position year-round — don't wait until tax time to discover you're missing records

Try Propperly free — we track your deductions automatically and generate tax-ready reports for your accountant →

Last updated: January 2025. This guide is for general information only and does not constitute tax advice. Consult a registered tax agent for advice specific to your situation.

Investment Property Tax Deductions Australia 2025: Complete Guide | Propperly