Rental Property Tax Deductions: What You Can Claim in Australia (2025–26)

Why this guide exists

If you own a residential rental property in Australia, the difference between a good tax outcome and an expensive one usually comes down to two things: knowing which expenses you can claim, and being able to prove them. Every financial year, property investors miss legitimate deductions simply because the receipts were scattered across email, agent portals and shoeboxes, or they claim something they shouldn't and end up exposed if the Australian Taxation Office (ATO) asks questions.

This guide walks through the rental property tax deductions available to Australian investors for the 2025–26 financial year. It covers the expenses you can claim immediately, the ones you claim gradually over several years, the costs you can't claim at all, and the records you need to keep. It is written for owners of residential rental properties, including first-time landlords, long-term investors, and people renting out part of their home or a holiday property.

The one rule behind every rental deduction

Before the lists, there is a single principle that decides almost every question: you can claim expenses to the extent they relate to producing your rental income, and only for the period the property is rented or is genuinely available for rent.

Two phrases in that sentence do a lot of work. "To the extent" means that if an expense is only partly related to earning rental income, you can only claim the rental portion. A holiday home you use yourself for part of the year, or a property you co-own, both need apportionment. "Genuinely available for rent" means the property must be truly on the market at a commercial rent, not quietly held back for friends, family or your own use. If you advertise a property at an unrealistic rent, or restrict who can rent it, the ATO may treat it as not genuinely available, and your deductions for that period can be reduced or denied.

Keep that principle in mind and most of the grey areas below resolve themselves.

The three categories of rental property deductions

The ATO groups rental expenses into three buckets, and the bucket an expense falls into decides when you get the deduction:

• Expenses you can claim now, in the same income year you incur them.
• Expenses you claim over several years, such as borrowing costs, the decline in value of depreciating assets, and capital works.
• Expenses you can't claim, including some that instead reduce your capital gains tax when you sell.

Getting an expense into the right bucket is where most mistakes happen, and it is exactly where good records pay off.

1. Expenses you can claim immediately

These are the day-to-day running costs of holding a rental property. You can generally claim them in full in the year you incur them, for the period the property was rented or available for rent. Common examples include:

• Advertising for tenants
• Property agent fees and commissions
• Council rates
• Water charges (the portion you pay rather than the tenant)
• Land tax
• Cleaning, gardening and lawn mowing
• Pest control
• Insurance (building, contents, public liability and landlord insurance)
• Interest on your investment loan
• Bank fees on the loan account
• Body corporate or strata fees (administrative fund)
• Repairs and maintenance
• Phone, internet and stationery used to manage the property
• Tax-related expenses, such as the cost of a registered tax agent managing your rental affairs

Two of these deserve a closer look, because they are the biggest and the most commonly misunderstood: interest and repairs.

Interest on your loan

If you took out a loan to buy, build or improve your rental property and the property is rented or genuinely available for rent, the interest charged on that loan is generally deductible. This is usually the single largest deduction for a geared investor.

The catch is that interest only stays deductible while the borrowed money is being used to produce rental income. If you redraw from the loan for a private purpose, such as a car or a holiday, the interest on that portion is not deductible, and you now have a mixed-purpose loan that has to be apportioned. Mixed-purpose loans are one of the most common areas the ATO reviews, so it is worth recording the purpose of every redraw at the time you make it rather than trying to reconstruct it years later.

Repairs and maintenance (and the trap of "improvements")

You can claim an immediate deduction for repairs and maintenance that relate to wear and tear or damage that happened while the property was rented. Fixing a leaking tap, replacing a broken window, repainting a faded wall and servicing the heating are typical examples.

Three distinctions matter here, and they are the difference between an immediate deduction and a deduction spread over decades:

• Repairs restore something to its original condition without changing its character. These are usually deductible now.
• Improvements make something better, more valuable, or change its character, for example replacing a worn laminate kitchen with a new stone one. Improvements are capital in nature. They are not an immediate repair; they are claimed gradually as capital works or as depreciating assets.
• Initial repairs, meaning defects or damage that existed when you bought the property, are not deductible as repairs even if you fix them before the first tenant moves in. They are treated as capital, and may form part of your cost base for capital gains tax or be claimed as capital works.

This repairs versus capital line is genuinely difficult, and it is one of the items the ATO most often questions. When in doubt, record what the work was, why it was done and the condition of the item before and after, and let your registered tax agent make the final call.

If you'd rather work from a tick-box list, grab the printable rental property tax deductions checklist — it's the companion to this guide.

2. Expenses you claim over several years

Some costs are too large, or too long-lived, to deduct all at once. Instead, you spread the deduction across multiple income years.

Borrowing expenses

These are the costs of setting up the loan itself, as distinct from the interest. They include loan establishment fees, lender's mortgage insurance, title search fees charged by your lender, mortgage broker fees, stamp duty on the mortgage, and the cost of preparing and filing the mortgage documents.

The rule is straightforward. If your total borrowing expenses are more than $100, you spread the deduction over five years or the term of the loan, whichever is shorter. If they are $100 or less, you can claim the lot in the year you incur them. If you pay the loan out early, you can claim whatever balance is left in that year. Note that interest is not a borrowing expense, and neither are premiums on loan protection insurance.

Decline in value of depreciating assets

Depreciating assets are the items inside the property that wear out over time, such as carpet, curtains, blinds, ovens, cooktops, dishwashers, washing machines, air conditioners and furniture. The ATO calls this "decline in value", though most people still call it depreciation.

The mechanics:

• If an asset costs $300 or less, you can usually claim an immediate deduction for the full cost, provided it is not part of a set costing more than $300.
• If an asset costs more than $300, you claim its decline in value over its effective life, using either the prime cost method or the diminishing value method.

There is an important restriction that has tripped up many investors since 2017. If you buy a residential rental property with existing, used assets in it, or you turn a former home into a rental on or after 1 July 2017, you generally cannot claim the decline in value of those second-hand depreciating assets. You can still claim depreciation on assets you buy brand new for the property. This is one reason a professional depreciation schedule (see below) is so valuable: it separates what you can and cannot claim.

Capital works deductions

Capital works are the structural elements of the property and items considered permanently fixed: the building itself, extensions, structural improvements such as a new carport or retaining wall, and fixed items like built-in cupboards. You claim these under the capital works rules, commonly known as Division 43.

For residential rental properties where construction began after 15 September 1987, the deduction is 2.5% of the original construction cost per year, for 40 years from the date construction was completed. So a building that cost $300,000 to construct could yield a capital works deduction of around $7,500 a year for four decades, even though you did not spend a cent in cash that year.

You need evidence of the actual construction cost. If you don't know it, for example because you bought an established property, an appropriately qualified person such as a quantity surveyor can estimate it in a tax depreciation schedule.

A note on depreciation schedules

For depreciating assets and capital works, many investors engage a quantity surveyor to prepare a tax depreciation schedule. This is a one-off report that sets out the deductions you can claim each year for both the building and the eligible assets, and its cost is itself deductible. ledger.rent is not a quantity surveyor and does not produce these schedules, but it gives you a place to record the schedule and track the deductions it generates year after year, so nothing is missed at tax time. If you don't yet have a schedule, firms such as BMT, Duo Tax and Washington Brown are the established providers in this space.

3. Expenses you can't claim

Some costs are simply not deductible against your rental income. The most important ones to know:

• Travel to inspect or maintain your residential rental property. Since 1 July 2017, individual investors cannot claim travel expenses relating to a residential rental property. The exception is narrow and applies mainly to those carrying on a business of letting rental properties or certain excluded entities, which most individual landlords are not.
• The decline in value of second-hand assets that came with the property, as covered above, for properties acquired or first rented on or after 1 July 2017.
• Acquisition and disposal costs, such as the purchase price, conveyancing fees and stamp duty on the property transfer (in most states). These instead form part of your cost base and reduce your capital gain when you sell.
• Expenses for periods of private use, including the portion relating to your own stays in a holiday home or the part of a home you live in.
• Expenses your tenant pays, such as the water usage they are billed for directly.
• Costs that are not genuinely incurred to produce rental income, including a property held off-market for family.

The good news is that several of these "can't claim now" costs, such as stamp duty on purchase and the cost of capital improvements, are not lost. They reduce the capital gains tax you pay when you eventually sell, which is why keeping those records for the entire time you own the property matters just as much as keeping this year's receipts.

Apportionment: holiday homes, part-year rentals and co-ownership

If your property isn't a straightforward, fully tenanted investment for the whole year, you need to apportion your deductions:

• Holiday homes and short-stay properties must have their expenses split between the periods they were rented or genuinely available, and the periods you used them privately. A clear record of which days were rented, which were available, and which were private use is essential, and it is exactly the kind of evidence the ATO looks for.
• Renting out part of your home requires you to apportion shared expenses, often on a floor-area basis, between the income-producing part and your private living space.
• Co-owned properties are claimed in line with each owner's legal ownership share. Joint tenants split income and deductions 50/50; tenants in common split according to their ownership percentages.

Why record-keeping decides your deductions

You can only claim what you can substantiate. The ATO expects you to keep records that show the expense, the date, the supplier and the connection to your rental income, and to keep them for five years from the date you lodge the return that includes the claim. For anything affecting your capital gain, such as purchase costs and improvements, you need to keep records for the entire period you own the property plus five years after you sell.

In practice, the investors who claim everything they are entitled to, and who survive a review without stress, are the ones who capture records as they go rather than scrambling in July. That means storing every invoice and statement in one place, categorising each expense the way your accountant expects to see it, flagging the items that need a judgement call (repairs versus capital, mixed-purpose loans, private-use days), and producing a clean summary at year end.

This is the entire reason ledger.rent exists. Instead of a shoebox of receipts, you record rent and expenses against each property and financial year, the repairs-versus-capital review queue prompts you on the tricky items, the private-use day register handles holiday-home apportionment, and at tax time you export a structured pack of totals, categories and notes that your registered tax agent can work from directly. It doesn't lodge your return or give advice; it makes sure that when you or your accountant prepares it, nothing is missing and everything can be proven.

Get your rental records ready before tax time

Knowing the deductions is half the job. Being able to prove them, cleanly and in one place, is the other half. ledger.rent gives Australian property investors a guided workspace to track rental income and expenses, flag the items that need accountant review, and export a clean year-end summary for your registered tax agent.

Start your free trial or view the rental property tax checklist to see what to gather before 30 June.

Related guides: Repairs vs Capital Improvements · Rental Property Expense Tracker · Loan Interest for Rental Properties · Rental Property Record-Keeping Guide

Last updated: May 2026. Based on ATO guidance current at the time of writing (Rental properties guide 2025). Tax rules change; always confirm the current position with a registered tax agent.