The Ultimate FY2026 Investment Property Tax Deductions Guide

Owning an investment property is one of Australia’s most popular ways to build long-term wealth. However, understanding what you can legitimately claim at tax time, and just as importantly, what you cannot claim, can be challenging.

Each year, the Australian Taxation Office (ATO) identifies thousands of errors in rental property tax returns. In fact, the ATO has consistently reported that a significant proportion of rental property owners make mistakes when lodging their returns. These mistakes range from claiming private expenses to overlooking valuable deductions that could legally reduce their tax bill.

At Clear Tax, we help thousands of Australian property investors every year prepare compliant, tax-efficient investment property tax returns. Our goal isn’t simply to maximise deductions; it’s to ensure every claim is supported by legislation and appropriate records, reducing the risk of costly ATO adjustments.

This practical guide explains the most common investment property tax deductions available for the 2025–26 financial year (FY2026) in plain English, together with practical examples, record-keeping tips and common mistakes to avoid.

Whether you own your investment property personally, jointly with your spouse, through a trust or another ownership structure, this guide will help you prepare for tax time with confidence.

To help you apply everything below, we’ve also put together a free FY2026 Rental Property Checklist, listing every deduction covered in this guide, so you can tick off what applies to you as you go.

Prefer a video explanation? We’ve also covered the key investment property tax deductions for FY2026 in a short YouTube video. If you’d like a quick walkthrough before diving into the details, watch it below.

Important Update: 2026 Property Tax Reforms

The Australian Government introduced significant investment property tax reforms during 2026.

Although these reforms generally do not change which expenses are deductible during FY2026, they may affect the future tax treatment of residential investment properties acquired after 7:30 pm AEST 12 May 2026, particularly in relation to negative gearing, future capital gains tax rules and certain SMSF property investment strategies.

If you purchased a residential investment property after 7:30 pm AEST 12 May 2026, or are considering purchasing another property, we strongly recommend obtaining professional tax advice before making investment decisions.

What Rental Income Must You Declare?

A common misconception is that only weekly rent needs to be declared.

In reality, almost every amount received because of owning your rental property may be assessable income and generally needs to be included in your tax return.

Examples include:

• Weekly rental income
• Fortnightly or monthly rent
• Airbnb income
• Stayz income
• Booking.com income
• Rental bond retained for damage or unpaid rent
• Insurance payouts replacing lost rental income
• Government grants relating to rental income
• Reimbursements received from tenants

Example

Sarah rents her investment property for $720 per week.

During the year:

• She receives rental income of $37,440.
• The tenant causes damage, and Sarah legally retains $1,500 from the rental bond.
• Her landlord insurance pays her $2,400 after the property remains vacant following storm damage.

All three amounts generally form part of Sarah’s assessable rental income.

Immediate Tax Deductions

Many of the day-to-day costs of owning an investment property can generally be claimed as an immediate tax deduction in the year they are incurred.

These expenses are often referred to as operating expenses because they relate to the ongoing management of the rental property.

Property Management Expenses

Most property investors engage a real estate agent to manage their property.

The following expenses are generally deductible:

• Property management fees
• Letting fees
• Leasing commissions
• Tenant advertising costs
• Monthly administration fees
• Inspection fees
• Tribunal representation fees relating to tenants

Example

Your property manager charges:

• Management Fees – $1,850
• Advertising – $320
• Letting Fee – $480

Provided the property is producing assessable rental income, these expenses are generally deductible in the year incurred.

Insurance

Insurance is one of the most commonly overlooked deductions.

You may generally claim premiums for:

• Landlord insurance
• Building insurance
• Public liability insurance

Depending on the circumstances, some strata insurance costs may already be included within your body corporate levies.

Note: Life insurance, trauma insurance and income protection insurance connected with your investment loan are generally not deductible as rental property expenses.

Council Rates and Property Charges

Subject to your individual circumstances, common deductible holding costs include:

• Council rates
• Water rates
• Water service charges
• Body corporate or strata levies
• Land tax
• Emergency services levies (where applicable)

Where the property owner pays utilities on behalf of tenants (for example, furnished accommodation or some short-term rental properties), electricity, gas and water charges may also be deductible.

Example

Annual expenses include:

Provided these costs relate to producing rental income, they are generally deductible in the year incurred.

Loan and Finance Costs

One of the largest deductions for most property investors is loan interest.

Common deductible finance costs include:

• Interest on investment loans
• Annual package fees
• Loan account keeping fees
• Mortgage discharge fees (where deductible)
• Valuation fees relating to investment lending (where applicable)

Remember

Only the interest component of your loan is generally deductible. The principal repayment is never deductible.

Is All Interest Deductible?

No.

The deductibility of interest depends on how the borrowed funds are used, not simply on whether the loan is secured against an investment property.

Generally Deductible

1. Purchasing an investment property
2. Funding renovations to an investment property
3. Paying acquisition costs relating to the investment

Generally Not Deductible

1. Purchasing a private vehicle
2. Family holidays
3. School fees
4. Personal living expenses

If you redraw funds from your investment loan for private purposes, the interest generally needs to be apportioned between deductible and private use.

Example

Michael has an investment loan of $700,000.

Later he redraws $80,000 to purchase a family car.

From that point onwards, only the interest relating to the investment portion of the loan generally remains deductible.

This is one of the most common errors identified by the ATO.

Borrowing Expenses

Certain costs incurred when establishing an investment loan are treated differently from ordinary running expenses.

Examples include:

• Loan establishment fees
• Lender’s Mortgage Insurance (LMI)
• Mortgage registration fees
• Title search fees
• Loan preparation fees

Important

If your total borrowing expenses are $100 or less, they are generally deductible in full in the year incurred.

If they exceed $100, they are generally deductible over the lesser of five years or the term of the loan.

Repairs and Maintenance

Many repairs are immediately deductible, but not all.

Repairs generally restore an existing asset to its original condition.

Examples include:

• Plumbing repairs
• Electrical repairs
• Replacing broken glass
• Repairing leaking gutters
• Pest control
• Professional cleaning
• Gardening
• Lawn mowing
• Smoke alarm servicing
• Lock repairs

Initial Repairs

One of the most misunderstood areas of property taxation relates to initial repairs.

If you purchase a property with existing defects and repair those defects shortly after settlement, those repairs are generally not immediately deductible.

Instead, they are usually treated as capital costs and may either:

• form part of the property’s CGT cost base; or
• qualify as capital works deductions depending on the nature of the expenditure.

Example

You purchase a rental property.

The roof was already leaking before settlement.

You spend $14,000 replacing sections of the roof immediately after purchase.

Although the work is called a “repair”, it generally relates to a defect that existed before you acquired the property and therefore is unlikely to be immediately deductible.

Repairs vs Improvements

Understanding the difference between a repair and an improvement is critical.

Immediate Repair

• Fixing leaking taps
• Replacing broken window glass
• Repairing damaged fencing
• Repairing electrical wiring

Capital Improvement

• Installing a brand-new kitchen
• Building a deck
• Adding another bedroom
• Replacing an entire roof
• Installing solar panels

Capital improvements are generally capital in nature and are not immediately deductible. They may instead qualify for depreciation or form part of your property’s capital gains tax cost base.

A simple way to distinguish between repairs and improvements is to ask:

“Am I restoring something, or am I making it better than it was?”

Professional Fees

Many investors forget these deductions. Depending on your circumstances, you may be able to claim:

• Tax agent fees relating to rental income
• Quantity Surveyor fees
• Legal fees relating to tenancy disputes
• Lease preparation costs
• Accounting fees

A professionally prepared depreciation schedule is often one of the highest-return investments a property owner can make and the fee is generally deductible.

Other Running Costs

Other commonly overlooked deductible expenses may include:

• Stationery, postage and bank charges
• Software subscriptions used to manage your property
• Safety compliance inspections (smoke alarms, pool compliance certificates, pest inspections)
• Security monitoring
• Rubbish removal after tenancy
• Professional cleaning between tenants

Individually, these expenses may appear modest, but together they can make a meaningful difference to your overall tax position.

Expenses Claimed Over Time (Depreciation)

Not every expense relating to your investment property can be claimed immediately.

Some expenses provide a benefit over many years. Rather than claiming the full cost in the year you incur it, the tax law requires these costs to be claimed progressively over their effective life.

This process is commonly referred to as depreciation.

For many investors, depreciation is one of the largest, and most overlooked, tax deductions available.

One of the major advantages of depreciation is that many deductions do not require additional cash outlays each year, yet they can still reduce your taxable income.

Two Types of Depreciation

Investment property depreciation generally falls into two categories:

1. Plant & Equipment (Division 40)

These are removable assets within the property that have their own effective life.

Examples include:

• Air conditioning units
• Ovens
• Cooktops
• Dishwashers
• Hot water systems
• Carpet
• Blinds
• Ceiling fans
• Garage door motors
• Smoke alarms

Each eligible asset is depreciated over its effective life.

2. Capital Works (Division 43)

Capital works relate to the building itself or structural improvements.

Examples include:

• Building construction, extensions and additional rooms
• Kitchen and bathroom renovations
• New roof or structural roofing
• Garage, carport, retaining walls, pergolas and decking
• Concrete driveways and paths, and permanent fencing

These deductions are generally claimed over many years rather than immediately.

Plant & Equipment – Things to Know

Many investors assume every appliance automatically qualifies for depreciation.

In reality, the rules are more complex.

The availability of depreciation depends on factors including:

• When the property was purchased
• Whether the property was new or established
• Whether the asset itself was new or second-hand
• Whether any renovations were completed

The rules for residential rental properties differ from commercial properties.

Because the legislation is complex, we recommend obtaining professional advice before calculating depreciation yourself.

Example – Plant & Equipment

You purchase a newly built investment property during FY2026.

The builder installs:

• Dishwasher
• Air conditioner
• Oven
• Rangehood
• Carpet
• Blinds

Many of these assets may qualify for depreciation over their effective lives.

Example- Capital Works

Emma spends $45,000 renovating the bathroom of her rental property.

Although she cannot generally claim the entire amount immediately, part of the expenditure may qualify for capital works deductions over future years.

Why a Quantity Surveyor Report Matters

Many investors underestimate the value of obtaining a professional depreciation schedule.

A registered Quantity Surveyor prepares a comprehensive report identifying eligible depreciation deductions over the life of the property.

Benefits include:

• Maximises legitimate depreciation claims
• Saves significant time
• Reduces the risk of errors
• Provides supporting documentation if requested by the ATO

Importantly, the fee paid to prepare a depreciation schedule is generally tax deductible.

Capital Expenses

Some expenses cannot be claimed as deductions against rental income at all.

Instead, they are generally added to the property’s Capital Gains Tax (CGT) cost base and may reduce any capital gain when the property is eventually sold.

Although these expenses may not provide an immediate tax benefit, keeping proper records can significantly reduce future CGT.

Common Capital Expenses

Examples include:

• Purchase price
• Conveyancing fees and legal costs on purchase
• Buyer’s agent fees (where applicable)
• Survey fees and building inspection reports (in some circumstances)
• Selling agent commission, advertising costs when selling, and conveyancing costs on sale

What About Stamp Duty?

In most cases, stamp duty paid when purchasing an investment property is not immediately deductible.

Instead, it generally forms part of the property’s CGT cost base and may reduce the capital gain when the property is sold.

However, there are limited exceptions for certain leasehold interests and specific transactions.

If your circumstances involve Crown leases or other specialised property interests, professional advice should be obtained.

Common Expenses Investors Forget

Many property investors miss legitimate deductions simply because they are relatively small.

Examples include:

• Quantity Surveyor fees
• Smoke alarm inspections
• Pool compliance inspections
• Pest control
• Security monitoring
• Tax agent fees
• Accounting fees
• Loan package fees
• Property management software
• Bank fees on investment accounts
• Gardening
• Rubbish removal after tenancy
• Professional cleaning between tenants

Individually, these expenses may appear modest, but together they can make a meaningful difference to your overall tax position.

Common Depreciation Mistakes

The ATO regularly identifies errors relating to depreciation claims.

Some of the most common include:

1. Claiming the Full Cost Immediately

Many investors incorrectly claim the entire cost of:

• Air conditioners
• Hot water systems
• Dishwashers
• Carpet

These assets generally need to be depreciated rather than claimed immediately.

2. Not Obtaining a Depreciation Schedule

Many investors assume their accountant will estimate depreciation.

Without a Quantity Surveyor’s report, significant deductions can sometimes be missed.

3. Forgetting Renovations

Even relatively small renovations may generate depreciation deductions.

Examples include:

• Replacing kitchen cabinetry
• Installing new flooring
• Renovating bathrooms
• Replacing windows

Always retain invoices relating to renovation work.

4. Throwing Away Records

Keep records for:

• Building contracts
• Appliance purchases
• Renovation invoices
• Loan establishment costs
• Settlement statements
• Quantity Surveyor reports

Good records not only support current deductions but may also significantly reduce Capital Gains Tax when the property is eventually sold.

Pro Tip

Many investors focus only on expenses they paid during the year.

However, some of the largest tax deductions arise from non-cash depreciation deductions identified through a professionally prepared depreciation schedule.

If you’ve recently:

• purchased a property,
• completed renovations,
• installed new appliances, or
• built a new investment property,

It is often worthwhile discussing depreciation opportunities with your accountant.

The Most Common ATO Rental Property Mistakes

The ATO continues to identify rental property deductions as one of its key compliance focus areas.

Using information obtained from banks, state revenue offices, property managers, online accommodation platforms and other third parties, the ATO compares information reported in tax returns with data it receives from external sources.

Most mistakes are genuine errors rather than deliberate overclaims, but they can still result in amended assessments, penalties and interest.

Understanding the most common mistakes can help you avoid unnecessary problems.

Mistake 1 – Claiming Private Expenses

Only expenses incurred in earning rental income are generally deductible.

Private or domestic expenses cannot be claimed simply because they relate to an investment property.

Examples

• Family holiday to inspect your rental property
• Personal internet expenses
• Meals while visiting the property
• Personal accommodation

Always ask yourself:

Was this expense incurred primarily to earn rental income?

If the answer is no, it is unlikely to be deductible.

Mistake 2 – Claiming Travel to Residential Rental Properties

This remains one of the most misunderstood areas of investment property taxation.

Individual investors generally cannot claim travel expenses relating to residential rental properties.

This includes:

• Flights
• Accommodation
• Fuel
• Meals
• Car hire
• Parking
• Tolls

Limited exceptions apply to certain entities (such as some companies, SMSFs and managed investment trusts) and in limited circumstances.

Example

You drive from Melbourne to inspect your residential investment property in regional Victoria.

Although the trip relates to your investment, travel costs are generally not deductible.

Mistake 3 – Confusing Repairs with Improvements

Many investors believe every repair invoice is immediately deductible.

This is not always correct.

Generally:

Repairs

• Restore an existing asset
• Return something to its original condition
• Fix accidental damage
• Replace broken parts

Improvements

• Upgrade
• Extend
• Replace an entire asset
• Increase value
• Improve functionality

Mistake 4 – Initial Repairs

This mistake commonly occurs shortly after settlement.

If defects already existed when you purchased the property, repairing those defects is generally not immediately deductible.

Example

Immediately after buying a property you:

• Replace damaged flooring
• Repair structural cracks
• Replace an old bathroom

Although the work is described as repairs, the defects existed before you purchased the property.

These costs are generally treated as capital expenditure.

Mistake 5 – Incorrect Interest Claims

Interest is deductible based on how borrowed funds are used.

It is not determined simply because the loan is secured against an investment property.

Example

You redraw:

• $70,000 for a family holiday
• $40,000 to purchase a private vehicle

The interest relating to those amounts generally becomes private and non-deductible.

Maintaining separate loan accounts where possible can make record keeping much simpler.

Mistake 6 – Double Counting Expenses

Many property managers pay expenses directly from rental income.

Examples include:

• Council rates
• Water rates
• Insurance
• Strata levies

These expenses are usually already included within your Annual Property Manager Statement.

Before claiming additional deductions, ensure you are not claiming the same expense twice.

Mistake 7 – Renting Below Market Value

If you rent your property to:

• Parents
• Children
• Friends
• Other relatives

at significantly below market rent, your deductions may be limited.

The ATO expects rental arrangements to reflect commercial terms where full deductions are claimed.

Mistake 8 – Poor Record Keeping

One of the biggest reasons investors miss deductions is simply because receipts have been lost.

Without adequate records, your accountant may be unable to claim legitimate deductions.

Good record keeping also makes responding to any ATO review significantly easier.

What Records Should You Keep?

We recommend maintaining a dedicated folder (physical or electronic) for each investment property.

Keep copies of:

Purchase Documents

• Contract of Sale
• Settlement Statement
• Conveyancing invoices
• Loan documents
• Building inspection reports

Annual Income Records

• Property Manager Annual Statement
• Rental Ledger
• Bank Statements
• Airbnb or Stayz reports
• Insurance income statements

Operating Expenses

• Council rates, water rates and land tax
• Insurance and property management fees
• Repairs, maintenance, gardening, cleaning and pest control
• Utility invoices paid by the owner

Loan Documents

• Annual interest statements
• Loan package fees
• Borrowing expenses
• Refinancing costs

Capital Expenditure

• Renovation invoices
• Appliance purchases
• Building contracts
• Quantity Surveyor report

Sale Documents

When you eventually sell the property, retain:

• Sale Contract
• Agent commission
• Marketing costs
• Conveyancing fees
• Settlement Statement

These documents may significantly reduce your Capital Gains Tax.

How Long Should You Keep Records?

Generally, tax records should be retained for at least five years.

However, documents relating to the purchase, improvement and eventual sale of an investment property may need to be retained for considerably longer, as they can affect the Capital Gains Tax calculation when the property is disposed of.

If you’re unsure, it’s usually better to keep records rather than discard them.

Preparing for Tax Time

Preparing throughout the year can save considerable time and reduce the risk of missing deductions.

We recommend following these simple steps.

Step 1 – Gather Your Property Manager Statement

Most investors receive an Annual Property Manager Statement summarising:

• Rental income
• Property management fees
• Repairs paid by the agent
• Council rates
• Water charges
• Insurance (where paid)

This will usually be your primary tax document.

Step 2 – Gather Expenses You Paid Personally

Remember to include expenses that were not paid by your property manager.

Examples include:

• Loan interest
• Land tax
• Insurance
• Renovations
• Gardening
• Pest control
• Accountant fees
• Quantity Surveyor fees

Step 3 – Organise Your Supporting Documents

Create separate folders for:

• Income
• Loan documents
• Repairs
• Capital works
• Improvements
• Depreciation
• Insurance

Electronic folders work just as well as paper files.

Step 4 – Complete the Clear Tax FY2026 Rental Property Checklist

Our Rental Property Checklist has been designed to simplify tax time.

Simply:

• Enter your income.
• Record your expenses.
• Attach supporting documents.
• Email everything to our team.

If you own multiple properties, simply complete one column for each property.

If a property is jointly owned, enter the total (100%) figures. We will allocate ownership correctly when preparing your tax return.

Common Questions We Ask Our Clients

Before preparing your tax return, we will typically ask whether you:

• Purchased or sold an investment property during the year.
• Completed renovations.
• Installed new appliances.
• Refinanced your investment loan.
• Used Airbnb or another short-term rental platform.
• Changed ownership.
• Moved into or out of the property.
• Rented the property below market value.
• Purchased the property through a trust, company or SMSF.

Providing this information upfront helps us prepare a more accurate and tax-efficient return.

Tax Planning Is More Than Claiming Deductions

Many investors focus only on deductions.

However, proactive tax planning can often provide even greater long-term benefits.

Examples include:

• Choosing the right ownership structure before purchase.
• Managing Capital Gains Tax before selling.
• Planning renovations efficiently.
• Reviewing loan structures before refinancing.
• Obtaining depreciation schedules for new acquisitions.
• Understanding future tax law changes before making investment decisions.

Seeking advice before making major decisions is often more valuable than seeking advice after the transaction has already occurred.

Why Choose Clear Tax?

Property taxation is one of our core areas of expertise.

Our team works with thousands of Australian property investors each year, from first-time investors through to clients with large multi-property portfolios.

We can assist with:

• Individual Investment Property Tax Returns
• Capital Gains Tax (CGT) Calculations
• Property Ownership Structures
• Trust & Company Advice
• SMSF Property Compliance
• Depreciation & Capital Works Reviews
• Negative Gearing Advice
• Property Tax Planning
• ATO Reviews & Audit Assistance

Whether you own one investment property or an extensive property portfolio, our focus is helping you remain compliant while legally maximising your tax outcomes.

Frequently Asked Questions

Can I claim the entire mortgage repayment?

No.

Only the interest component of an investment loan is generally deductible.

The principal portion of your repayments is not deductible.

Can I claim renovations immediately?

Usually not.

Major renovations and improvements are generally capital in nature and may instead qualify for depreciation or form part of your property’s Capital Gains Tax cost base.

Can I claim repairs?

Often, yes.

Repairs that restore an existing asset to its original condition are generally deductible.

However, improvements, upgrades or initial repairs may not be immediately deductible.

Can I claim travel to inspect my rental property?

Individual investors generally cannot claim travel expenses relating to residential rental properties.

Limited exceptions apply to certain entities and specialised circumstances.

Can I claim depreciation on an older property?

Possibly.

The availability of depreciation depends on several factors, including:

• when the property was acquired
• whether assets are new or second-hand
• whether renovations have been undertaken

Professional advice is recommended.

Should I obtain a Quantity Surveyor Report?

For many investment properties, yes.

A professionally prepared depreciation schedule often identifies deductions that significantly exceed its preparation cost.

What happens if I lose my receipts?

You should always keep supporting records.

Where records are incomplete, your accountant may be unable to claim certain deductions.

Electronic copies are generally acceptable and easier to maintain.

How long should I keep records?

Generally, tax records should be retained for at least five years.

However, documents relating to the purchase, improvement and sale of an investment property should usually be retained until well after the property is sold, as they may affect your Capital Gains Tax calculation.

What if I own multiple investment properties?

Maintain separate records for each property.

Our Rental Property Checklist has been designed to help organise information for multiple properties in one convenient spreadsheet.

Should I speak to an accountant before selling?

Absolutely. Obtaining advice before:

• selling a property,
• refinancing,
• renovating,
• changing ownership, or
• purchasing through a trust, company or SMSF

can often produce significantly better tax outcomes than seeking advice after the event.

Before You Lodge Your Tax Return

Before lodging your investment property tax return, ask yourself:

• Have I included all rental income?
• Have I gathered my Property Manager Annual Statement?
• Have I included expenses I paid personally?
• Have I separated repairs from capital improvements?
• Have I considered depreciation?
• Have I reviewed borrowing expenses?
• Have I avoided double-counting expenses?
• Have I retained all supporting documents?

If you’re unsure about any of these questions, it’s worth seeking professional advice before lodging.

Preparing your tax return doesn’t have to be stressful.

To make tax time easier, we’ve developed the Clear Tax FY2026 Rental Property Checklist.

The checklist helps you organise:

• Rental income
• Interest
• Council rates
• Water rates
• Insurance
• Repairs
• Maintenance
• Borrowing expenses
• Depreciation information
• Capital improvements
• Supporting documents

Simply complete the spreadsheet and send it to our team with your supporting documents.

We’ll take care of the rest.

Ready to Maximise Your Investment Property Tax Return?

Every year we see investors overlook legitimate deductions, incorrectly claim expenses that are not deductible, miss valuable depreciation opportunities, or make costly mistakes that could have been avoided with early advice.

Our experienced property tax specialists can help you:

• maximise legitimate deductions;
• minimise the risk of ATO adjustments;
• understand future tax implications;
• prepare an accurate and compliant tax return; and
• develop long-term tax strategies for your property portfolio.

Whether you’re purchasing your first investment property or managing a substantial portfolio, we’re here to help.

Book Your FY2026 Property Tax Review

If you’d like assistance preparing your investment property tax return or would like advice before making your next property decision, we’d love to help.

Book an Appointment: Click here

Disclaimer

The information contained in this guide is provided for general educational purposes only and is current as at the date of publication. It does not constitute taxation, legal or financial advice and should not be relied upon as such.

Tax outcomes depend on your individual circumstances, ownership structure, residency status and the facts of your particular situation. Tax laws and ATO guidance may change over time.

Before acting on any information contained in this guide, you should seek professional advice tailored to your circumstances.