FY 2025-26 Investment Property Deductions Guide

Investment property deductions are one of the most valuable tools available to Australian property investors, and also one of the areas where the ATO sees the most errors. On its own analysis, the ATO estimates that around nine in ten rental property returns contain at least one mistake, whether that’s an expense claimed incorrectly, income left out, or interest not apportioned correctly between private and investment use.

That gap matters in both directions. Under-claiming means paying more tax than you need to. Over-claiming, or getting the classification of an expense wrong, can mean amended assessments, interest charges, and a longer, more stressful process if the ATO asks questions later.

This guide sets out the most common investment property deductions, what’s changed for financial year 2025-26, the records you should be keeping, and when it’s worth speaking with your accountant before you lodge.

Why Investment Property Deductions Matter

When your investment/rental property earns income, you must declare that income in your tax return. In return, Australian tax law allows you to claim eligible expenses that relate to earning that income, reducing your taxable income and, in turn, the tax you pay.

The complexity isn’t in that basic principle. It’s in the detail: which expenses are deductible immediately, which are capital in nature and claimed over several years, and which aren’t deductible at all. Incorrectly reported interest expenses alone, largely from part of a loan being used for both investment and private purposes, are estimated by the ATO to account for around 42% of the $1.2 billion tax gap associated with rental properties. Repairs versus capital improvements is the other area the ATO consistently flags as poorly understood.

The ATO’s ability to check your claims has also grown. It now cross-references rental returns against data from banks, property managers, landlord insurers, rental bond authorities, and sharing economy platforms such as Airbnb, so mismatches between declared income and claimed deductions are increasingly easy to identify.

None of this means the rules have become more restrictive. It means the deductions you’re entitled to are still there to claim, but getting the classification and the paperwork right matters more than ever.

What Can You Claim as Investment Property Tax Deductions?

The deductions available depend on your individual circumstances, how the property is used, and whether the expense relates directly to producing rental income.

Some expenses are immediately deductible during the financial year. Others, such as building improvements, may need to be claimed over time.

Let’s look at the most common investment property deductions available to Australian property owners.

1. Finance Costs You May Be Able to Claim

For many investors, loan-related expenses represent the largest deductions each year.

Interest on Your Investment Loan

Interest charged on money borrowed to purchase or maintain an income-producing property is generally deductible. This is one of the most valuable deductions available to property investors, and also one of the ATO’s biggest ongoing compliance concerns. The ATO has identified incorrect apportionment of interest between private and investment use as a major contributor to the rental property tax gap.

There is one point many people overlook: the purpose of the borrowed funds determines whether the interest is deductible. 

For example, if you redraw part of your investment loan to renovate your family home or purchase a car, the interest relating to that private portion is generally not deductible. Keeping clear loan records becomes very important if your loan has been used for more than one purpose, as the ATO now cross-checks loan data directly with lenders.

Borrowing Expenses

Some costs associated with setting up your investment loan may also be deductible. These can include:

• Loan establishment fees
• Mortgage registration fees
• Title search fees
• Certain legal costs relating to the loan
• Lender’s Mortgage Insurance, where applicable

Depending on the amount involved, these expenses may need to be claimed over several years rather than immediately.

If you have refinanced your investment loan during FY 2025-26, let your accountant know before lodging your tax return. Refinancing can affect your deductions and may require additional calculations.

Important: ATO Interest Charges Are No Longer Deductible

If you have (or have had) an outstanding tax debt of any kind, this is a significant change for FY 2025-26. General Interest Charge (GIC) and Shortfall Interest Charge (SIC) imposed by the ATO on unpaid or amended tax liabilities are no longer tax deductible for amounts incurred on or after 1 July 2025, regardless of which income year the underlying debt relates to. 

GIC or SIC incurred before that date remains deductible. This is separate from interest on your investment loan, but it is worth being aware of if you have an ATO payment plan or outstanding balance, as it changes the true cost of carrying that debt. Speak with your accountant if this applies to you.

2. Property Expenses That Often Get Overlooked

Many ongoing ownership costs may qualify as deductions when they relate to earning rental income.

Common deductible expenses include:

• Council rates
• Water rates paid by the owner
• Land tax
• Strata or body corporate levies (note that special purpose levies for capital improvements are treated differently, as explained below)
• Building insurance
• Landlord insurance

These expenses can add up over an entire financial year. Missing even a few invoices could reduce the deductions available to you.

If your property manager sends you an annual financial summary, keep it somewhere safe. It often provides an excellent starting point when preparing your tax return.

A note on body corporate fees: regular administration and general purpose sinking fund levies are generally deductible in the year you pay them. However, a special levy raised specifically to fund a capital improvement (for example, a roof replacement) is treated as a capital works expense and generally can’t be claimed as an immediate deduction; it’s claimed over time instead.

3. Repairs and Maintenance: Know the Difference

This is one of the areas that causes the most confusion, and it remains one of the ATO’s top three focus areas for rental property compliance, alongside interest deductions and borrowing expenses.

Not every expense that involves fixing something receives the same tax treatment.

A repair generally restores an existing item after normal wear and tear. Replacing broken roof tiles after storm damage or repairing a leaking tap are common examples.

An improvement usually makes something better than it was before, or replaces it with a superior asset. For example, replacing a whole window frame instead of just the cracked glass, or replacing an old kitchen with a new one.

Why does this matter? Repairs may be immediately deductible. Improvements are generally treated as capital works or new depreciating assets, and claimed over time instead of all at once.

There is one further trap worth flagging: repairs carried out to fix damage that existed at the time you purchased the property, often called “initial repairs,” are not immediately deductible, even if the work looks like a standard repair. These are generally treated as capital in nature.

If you are planning significant renovations, speak with your accountant before the work begins. A little advice beforehand can help avoid expensive mistakes later.

A note on tradespeople and contractors: if you pay a contractor to carry out repairs or other work on your rental property, they generally need to provide you with an Australian Business Number (ABN) and a tax invoice. If a supplier doesn’t provide an ABN, you may be required to withhold an amount from the payment (currently 47%) and remit it to the ATO. If you don’t do this where it’s required, you risk losing the deduction for that expense altogether, including situations like paying cash for a “no invoice” discount. Always ask for a proper invoice and keep it on file.

4. Property Management Costs You Shouldn’t Forget

If you use a property manager, many of those expenses may also be deductible. These commonly include:

• Property management fees
• Letting fees
• Advertising for new tenants
• Lease preparation costs
• Lease renewal fees

Even if your property remains vacant for a short period, expenses may still be deductible where the property is genuinely available for rent, meaning it’s actively advertised, at a realistic rent, and not being reserved for personal use. Simply intending to rent it out at some point isn’t enough on its own.

Keeping records of advertising, rental listings, and property management statements helps support your claims if questions arise later.

5. Depreciation Can Make a Bigger Difference Than You Think

Depreciation is often one of the most valuable investment property tax deductions, yet many owners either overlook it or underestimate its value. Unlike repairs, depreciation allows you to claim the decline in value of eligible assets over time.

Two common categories apply.

Plant and Equipment

Items such as air conditioners, carpets, blinds, hot water systems, appliances, and certain fittings may qualify for depreciation where the relevant tax rules allow. Note that for most residential properties acquired second-hand after 7:30 pm on 9 May 2017, deductions for the decline in value of previously used plant and equipment are generally not available. 

This rule still applies for FY 2025-26 and is a common area of confusion for investors who purchased an established property.

Capital Works

The building itself may also qualify for capital works deductions where legislative requirements are met. These deductions generally relate to eligible construction costs rather than land value, and you can generally only claim for the periods the property was used to produce rental income during the year, not for any period of private use.

Many investors obtain a depreciation schedule prepared by a qualified quantity surveyor. This report helps identify deductions that might otherwise be missed and provides supporting documentation for your tax return. If you haven’t obtained one for a recently purchased property, it’s worth arranging sooner rather than later, as these reports can take time to prepare.

6. Professional Fees

Costs directly connected with managing your investment property and preparing your tax affairs may also be deductible, including:

• Tax agent and accounting fees relating to your investment property
• Certain legal expenses associated with managing (rather than acquiring or disposing of) the property

What You Generally Cannot Claim

Knowing what you cannot claim is just as important as knowing what you can. Claiming expenses that are not deductible may delay your tax return or result in adjustments if the ATO reviews your claims.

Some common expenses that are generally not immediately deductible include:

• The purchase price of the property
• Stamp duty paid on the purchase of the property
• Conveyancing and surveyor’s fees relating to buying or selling
• Improvements that increase the property’s value
• The private portion of loan interest
• Expenses that are not connected with earning rental income

Many of these costs are not lost forever. They can often be added to the property’s cost base and taken into account when calculating any capital gain or loss on sale. This is why it’s worth keeping records of these amounts even though they aren’t claimed as an annual deduction.

Travel is another area that often causes confusion. 

In most cases, individual investors cannot claim the cost of travelling to inspect, maintain, or collect rent from a residential rental property. This restriction has applied for several years and continues for FY 2025-26. There are limited exceptions for certain entities and specific circumstances, so it is worth discussing your situation with your accountant if you are unsure.

What About Negative Gearing?

Negative gearing is often mentioned when people talk about property investing, but it is not a tax deduction by itself.

Negative gearing happens when your deductible rental expenses are higher than your rental income for the financial year. This creates a rental loss that may reduce your overall taxable income, depending on your circumstances.

For example, your property may generate $30,000 in rental income, but your eligible expenses total $38,000. The resulting rental loss may be offset against your other assessable income, subject to current Australian tax laws.

Many investors focus only on the tax outcome, but tax savings should never be the only reason for purchasing an investment property. A property should still make sense as part of your long-term financial goals.

A word of caution if you’re purchasing in 2026As part of the 2026–27 Federal Budget, the Government legislated that negative gearing on established residential properties will be abolished from 1 July 2027 for any property purchased after 7:30 pm (AEST) on 12 May 2026. Losses on properties bought after that date can only be offset against rental income or future capital gains from rental property, rather than your salary or other income, though unused losses can be carried forward. If you already owned your property before that date, you’re grandfathered under the old rules and unaffected until you sell. Eligible new-build properties also remain exempt.

Recent ATO Focus Areas Worth Knowing About

The ATO has been clear that rental properties remain a significant compliance priority. A few things worth keeping in mind for FY 2025-26:

• Data matching has expanded further. The ATO now draws on information from banks, property managers, landlord insurers, state and territory revenue and land title authorities, and sharing economy platforms to check that rental income is fully declared and that deductions are reasonable relative to that income.
• All rental-related income must be declared, not just regular rent. This includes short-term letting income (such as Airbnb), bond money you retain, and insurance payouts relating to the property.
• Interest apportionment and repairs versus capital improvements remain the two biggest error areas, alongside borrowing expenses.
• Co-owned properties must have income and expenses split strictly according to each owner’s legal ownership interest, not according to who paid for what.
• The ATO finalised new formal guidance in May 2026 (Taxation Ruling TR 2026/1 and two supporting Practical Compliance Guidelines) covering how rental deductions should be apportioned for mixed-use properties, and, notably, a firmer stance on holiday homes that are also rented out.

None of this changes what you’re entitled to claim; it simply means accuracy and good documentation matter more than ever.

Have Your Circumstances Changed During FY 2025-26?

Even a small change can affect your tax position. Before lodging your tax return, let your accountant know if you have:

• Purchased an investment property (particularly if this was after 7:30 pm on 12 May 2026: new negative gearing rules may apply)
• Sold an investment property
• Refinanced an existing investment loan
• Borrowed additional funds using property equity
• Completed renovations or major improvements
• Changed a property from your home to an investment property, or the other way around
• Started or stopped using the property for short-term accommodation, such as Airbnb 
• Had the property vacant for an extended period
• Received an insurance payout relating to the property
• Have an outstanding ATO debt or payment plan (given the change to GIC/SIC deductibility noted above)

These events often require additional calculations and supporting information. Raising them early gives your accountant enough time to prepare your return correctly.

The Records You Should Start Gathering Now

Good record keeping makes tax time much easier. It also helps support your claims if the ATO requests further information, which, given current data-matching capabilities, is increasingly likely for larger or unusual claims. The ATO generally requires records to be kept for at least five years after lodging your tax return.

If you own an investment property, start collecting:

• Annual loan statements
• Property manager annual financial summaries
• Council and water rate notices
• Building and landlord insurance documents
• Repair and maintenance invoices (with ABN details for any contractors used)
• Body corporate or strata statements
• Loan refinance documents
• Quantity surveyor depreciation reports
• Purchase and sale contracts
• Settlement statements
• Invoices for renovations and capital improvements
• Records showing the property was genuinely available for rent during any vacant periods (for example, advertising and listing history)

Keeping digital copies throughout the year can save hours of searching when tax season arrives.

Don’t Wait Until Later in the Year

Many deductible expenses are easier to identify when they are still fresh in your mind.

Have you filed away every invoice from tradespeople? Do you still have the paperwork from refinancing your loan? Can you easily find your insurance renewal documents?

If the answer is no, now is the perfect time to start organising your records. The earlier you prepare, the smoother your tax return is likely to be.

A Simple Guide to Lodging Your Investment Property Information with Clear Tax

Preparing your documents before tax time helps us complete your return more efficiently and reduces the chance of missing valuable deductions.

Step 1: Gather Your Documents. Collect your rental income statements, loan statements, invoices, insurance documents, council rates, depreciation schedule, and any other records relating to your property.

Step 2: Tell Us About Any Changes. Let us know if you purchased, sold, refinanced, renovated, changed ownership, or changed how the property was used during the financial year.

Step 3: Submit Your Information. Send your documents securely to Clear Tax using your preferred method or provide them during your scheduled appointment.

Step 4: We Review Everything. Our team reviews your information carefully to identify eligible investment property tax deductions while ensuring your return complies with current Australian taxation laws.

Step 5: We Contact You If More Information Is Needed. If anything is unclear or additional records are required, we will contact you before lodging your return.

Speak to Us Before Making Major Property Decisions

Selling a property, refinancing a loan, completing renovations, or changing how a property is used can all affect your tax position.

A quick conversation before making those decisions may help you avoid unexpected tax consequences later.

Every investment property is different. The deductions available depend on ownership structure, how borrowed funds have been used, the nature of the expense, and your individual circumstances.

If you are unsure whether an expense is deductible or have experienced changes during FY 2025-26, contact the Clear Tax team before lodging your return. We will help you understand your obligations and ensure your return is prepared accurately in line with current ATO requirements.

Frequently Asked Questions

Can I claim my investment property mortgage deduction?

You may generally claim the interest charged on money borrowed for income-producing purposes. The deduction applies to the investment portion of the loan. If part of the loan has been used for private purposes, that portion of the interest is generally not deductible.

Can I claim repairs immediately?

It depends on the type of work completed. Repairs that restore existing damage caused through normal wear and tear may be immediately deductible. Improvements that add value or substantially upgrade the property, and repairs to fix damage that existed when you purchased the property, are generally claimed over time instead.

Is landlord insurance deductible?

Yes. Landlord insurance is generally deductible when the property is used to produce rental income.

Can I claim expenses while my property is vacant?

You may still be able to claim eligible expenses if the property was genuinely available for rent during the vacancy period. Keeping evidence that the property was advertised for rent is recommended.

Should I keep records after lodging my tax return?

Yes. The ATO generally requires taxpayers to keep records supporting their claims for at least five years after lodging their tax return.

Final Thoughts

Owning an investment property brings opportunities, but it also comes with responsibilities. Understanding your investment property deductions can help you claim what you are legally entitled to while staying compliant with Australian tax law.

The best results often come from good record-keeping, asking questions early, and seeking advice before making major financial decisions. If you start preparing now, tax time becomes far less stressful and much more rewarding.

If you own one investment property or an entire portfolio, Clear Tax is here to help you prepare an accurate, tax-efficient FY 2025-26 return with confidence.