Rental Property Deductions Checklist (Australia 2025-26)

General information only. Speak with a registered tax agent for advice.

Rental property owners in Australia can claim a wide range of expenses against their rental income — but the ATO is precise about what you can claim in full this year, what must be spread over time, and what is never deductible. Getting the classification right is not optional: misclassified deductions are one of the most common triggers for ATO rental property reviews.

How the ATO classifies rental expenses

The ATO divides rental property expenses into three categories: immediate deductions (claimed in full in the income year they are incurred), deductions spread over several years (depreciation and capital works), and non-deductible amounts (capital or private costs). Your property must be genuinely available for rent — advertised at a market rate — for any deduction to apply.

Immediate deductions: claim in full this year

These expenses are fully deductible in the year you pay them, provided the property is rented or genuinely available for rent.

Loan and financing costs

• Interest on your investment loan — this is typically the largest single deduction. On a $480,000 loan at 6.5%, your annual interest cost is around $31,200.
• Bank fees directly related to the investment loan account (e.g., account-keeping fees, redraw fees)

Rates and levies

• Council rates
• Water rates and usage charges (the portion you pay, not amounts reimbursed by tenants)
• Land tax (state-based; deductible because it is a cost of holding an income-producing asset)

Body corporate and strata fees

• Regular body corporate levies (administration fund and sinking fund levies)
• Special levies are deductible if the purpose is maintenance or repair, not capital improvement

Insurance

• Landlord insurance
• Building insurance
• Contents insurance (for landlord-owned furnishings)

Property management

• Property management fees — typically 5–10% of gross rent collected
• Letting fees (charged when a new tenant is placed)
• Lease renewal fees

Advertising and letting

• Advertising costs to find tenants (online listings, signboards)
• Tribunal or court fees related to a tenancy dispute

Maintenance and cleaning

• Pest control
• Gardening and lawn mowing
• Pool maintenance
• End-of-tenancy cleaning
• Repairs that restore the property to its original condition (see the Repairs vs Improvements guide for the full breakdown)

Other running costs

• Stationery, phone calls, and postage directly related to managing the property
• Quantity surveyor fees (to prepare a depreciation schedule)
• Tax agent fees attributable to the rental schedule

Deductions spread over several years

Borrowing costs (loan establishment costs)

Costs you pay to set up your investment loan — such as lender’s mortgage insurance (LMI), loan establishment fees, title search fees, and mortgage stamp duty — must be spread over the lesser of five years or the loan term. If the total borrowing costs are $100 or less, you can claim the full amount immediately in year one.

Example: $6,000 in borrowing costs on a 25-year loan → deduct $1,200/year for 5 years.

Decline in value — plant and equipment (Division 40)

Depreciable assets (plant and equipment) inside the property decline in value over their effective life as set by the ATO. You claim a deduction each year for that decline.

Important restriction: For residential rental properties purchased after 7 May 2017, you can only claim depreciation on brand-new plant and equipment you buy and install yourself. Second-hand assets in a property you buy cannot be depreciated by you (though they may still affect the cost base).

Common depreciable assets and their ATO effective lives:

Asset	Effective life	Method
Carpet	8 years	Diminishing value or prime cost
Blinds and curtains	10 years	Diminishing value or prime cost
Hot water system	12 years	Diminishing value or prime cost
Air conditioner (split system)	10 years	Diminishing value or prime cost
Dishwasher	10 years	Diminishing value or prime cost
Oven/cooktop	12 years	Diminishing value or prime cost
Smoke alarms	6 years	Diminishing value or prime cost

A quantity surveyor can identify all depreciable assets and prepare a depreciation schedule — their fee is itself deductible.

Capital works deductions (Division 43)

The structure of the building (walls, roof, floors, fixed plumbing) is deducted as a capital works deduction at 2.5% per year over 40 years, but only if the building was constructed after 16 September 1987.

If construction started before that date, no Division 43 deduction is available. For properties built after 1987, a quantity surveyor estimates the construction cost and you claim 2.5% annually.

Example: Building construction cost estimated at $200,000 → $5,000 deduction per year.

Not deductible

Expense	Why it is not deductible	Tax treatment
Stamp duty on acquisition	Capital cost	Added to CGT cost base
Conveyancing fees on purchase	Capital cost	Added to CGT cost base
Travel to inspect the property	Banned since 1 July 2017 for residential	No deduction
Expenses during a non-genuine vacancy	Private / no income-producing purpose	No deduction
Private-use portion (e.g., holiday home)	Personal benefit	Apportion only the income-producing days
Principal loan repayments	Capital — reduces debt, not income	Not deductible
Improvements to the property	Capital expenditure	Depreciated under Div 40 or Div 43

Worked example: negative gearing in practice

Scenario: Sarah owns a 3-bedroom house in Brisbane valued at $600,000. Her investment loan balance is $480,000 at 6.5% interest, and the property is rented at $550/week.

Income/Expense	Annual amount
Gross rental income (52 weeks × $550)	$28,600
Immediate deductions
Loan interest ($480,000 × 6.5%)	−$31,200
Council and water rates	−$2,400
Landlord and building insurance	−$1,800
Property management fees (8% of rent)	−$2,288
Repairs and maintenance	−$1,500
Total immediate deductions	−$39,188
Deductions spread over time
Capital works (Div 43, 2.5% of $180,000 construction cost)	−$4,500
Depreciation of plant and equipment (estimate)	−$1,200
Total deductions	−$44,888
Net rental loss	−$16,288

Sarah’s net rental loss of $16,288 is offset against her other income (salary, etc.), reducing her taxable income. At a 37% marginal rate, this saves approximately $6,027 in tax — the mechanism behind negative gearing.

Common mistakes

• Claiming travel to inspect the property. This has been disallowed for residential rental properties since 1 July 2017. Many investors still claim it in error.
• Treating borrowing costs as an immediate deduction. Loan establishment fees, LMI, and similar costs must be spread over 5 years (or the loan term if shorter), not claimed in full in year one.
• Claiming depreciation on second-hand assets purchased after 7 May 2017. The 2017 Budget measure removed this entitlement. Only new plant and equipment you install yourself is depreciable.
• Forgetting to apportion for private use. If you use the property personally for any period (especially a holiday home), you must reduce deductions to reflect only the income-producing days.
• Claiming expenses when the property was not genuinely available for rent. Vacancy is fine — but the property must be advertised at a realistic market rent. Holding it for personal convenience does not count.

Key takeaways

• The ATO’s three-bucket system (immediate, spread over time, not deductible) is the starting framework for every rental expense you assess.
• Interest on your investment loan is typically the largest immediate deduction — and the primary driver of negative gearing outcomes.
• Division 43 capital works (2.5%/year) and Division 40 plant and equipment depreciation are separate streams with different rules — a quantity surveyor’s schedule is worth the cost.
• Travel to inspect residential rental property has been non-deductible since 1 July 2017; property management fees are deductible instead.

Sources

• ATO: Rental expenses you can claim
• ATO: Rental properties 2025 (guide)
• ATO: Decline in value — rental property
• ATO: Capital works deductions

Next step

• Run annual cash flow with the Investment Property Calculator
• Estimate depreciation effect with the Depreciation Calculator