Owning an investment property comes with significant tax benefits. Understanding what you can claim is essential to maximising your return. Here's your complete guide to investment property tax deductions for 2026.

The Big Deductions

These are the major deductions that make the biggest difference to your tax return:

Top 5 Investment Property Deductions

  1. Loan interest - Often the largest deduction
  2. Depreciation - Building and fixtures
  3. Property management fees - Agent commissions
  4. Council rates & water - Ongoing costs
  5. Insurance - Landlord and building

1. Loan Interest

The interest on your investment property loan is fully tax deductible. This is usually the largest deduction and can be worth thousands each year.

Example: Interest Deduction

Loan Amount Annual Interest (6.5%) Tax Saving (37% bracket)
$500,000 $32,500 $12,025
$700,000 $45,500 $16,835
$1,000,000 $65,000 $24,050

What's Included in Borrowing Costs

  • Loan interest payments
  • Loan establishment fees (claimed over 5 years or loan term)
  • Mortgage registration fees
  • Mortgage broker fees
  • Stamp duty on the mortgage (not the property)
  • Lenders mortgage insurance (LMI) - claimed over 5 years

2. Depreciation

Depreciation lets you claim the wear and tear on your property and its fixtures, even though you haven't spent any money. There are two types:

Capital Works Deduction (Division 43)

This covers the building structure itself. For properties built after 16 September 1987, you can claim 2.5% of construction costs annually for 40 years.

Building Depreciation Example

Property built in 2020 with construction cost of $400,000:

  • Annual deduction: $400,000 x 2.5% = $10,000/year
  • Tax saving (37% bracket): $3,700/year

Plant & Equipment (Division 40)

This covers removable fixtures and fittings:

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

Important: For properties purchased after 9 May 2017, you can only claim plant and equipment depreciation on new items. Items already in a second-hand property cannot be claimed.

Get a Depreciation Schedule

A quantity surveyor can prepare a depreciation schedule for your property (cost: $500-800). This identifies all claimable depreciation and typically pays for itself many times over.

3. Repairs vs Improvements

Understanding the difference is crucial for your tax return:

Repairs (Fully Deductible This Year)

  • Fixing a broken window
  • Repairing a leaking tap
  • Patching damaged plaster
  • Replacing damaged carpet (like for like)
  • Repairing the hot water system

Improvements (Claimed Over Time)

  • Replacing a fence with a better one
  • Installing a new air conditioner
  • Renovating a bathroom
  • Adding a carport
  • Upgrading carpet to timber floors

Improvements must be depreciated over their effective life, not claimed immediately.

4. Property Management Expenses

All costs related to managing your rental property are deductible:

  • Agent fees - Ongoing management fees (typically 5-10% of rent)
  • Letting fees - Finding new tenants (usually 1-2 weeks rent)
  • Advertising for tenants
  • Lease preparation costs
  • VCAT/tribunal fees

5. Insurance

All insurance premiums related to your investment property are deductible:

  • Landlord insurance
  • Building insurance
  • Contents insurance (if property is furnished)
  • Public liability insurance

6. Council Rates & Levies

  • Council rates
  • Water rates and charges
  • Strata/body corporate fees
  • Land tax

7. Other Deductible Expenses

Don't forget these commonly overlooked deductions:

Often Missed Deductions

  • Travel to property - For inspections and maintenance (no longer deductible for residential properties as of 2017)
  • Tax agent fees - For preparing your tax return
  • Legal fees - For lease disputes or evictions
  • Cleaning - Between tenants
  • Gardening/lawn mowing
  • Pest control
  • Stationery and phone calls - Related to the property
  • Bank fees - On investment property account
  • Quantity surveyor fees - For depreciation schedule

What You CAN'T Claim

Be careful - these are NOT deductible:

  • Acquisition costs (stamp duty on purchase, conveyancing) - added to cost base for CGT
  • Travel to inspect or maintain your property (changed in 2017)
  • Borrowing expenses for the home you live in
  • Any costs during periods the property is not available for rent
  • Your own labour on repairs or maintenance

Negative Gearing Explained

When your property expenses exceed rental income, you're "negatively geared." This loss can be offset against your other income (like your salary), reducing your overall tax.

Negative Gearing Example

Rental income $30,000
Less: Interest -$32,500
Less: Other expenses -$8,000
Less: Depreciation -$12,000
Net rental loss -$22,500

On a $120,000 salary (37% tax bracket), this $22,500 loss saves you $8,325 in tax.

2026 Tax Changes

From 1 July 2026, new tax cuts apply:

  • The 16% tax rate drops to 15%
  • This may slightly reduce the value of negative gearing for some investors

Record Keeping Tips

To claim all your deductions, keep records of:

  • All receipts for expenses
  • Loan statements showing interest paid
  • Rental income statements from your agent
  • Depreciation schedule from quantity surveyor
  • Evidence property was available for rent

The ATO requires you to keep records for 5 years from the date you lodge your tax return.

Maximise Your Investment Property Returns

Whether you're buying your first investment property or refinancing an existing one, we can help structure your finance for maximum tax efficiency.

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