Guide · Updated 17 August 2026
Rental property deductions, line by line
What's deductible while a property is genuinely available for rent, what's capital, and where the ATO finds most errors in investor returns.
What can you claim on a rental property in Australia?
While the property is genuinely available for rent: loan interest on the portion borrowed for the property, council rates, water, insurance, body corporate fees, land tax, agent commission and letting fees, repairs and maintenance, pest control, gardening, and depreciation — plant and equipment (new only, for previously-used residential property) plus capital works at 2.5% a year for 40 years. Borrowing costs over $100 are deductible over five years. Not deductible: stamp duty on the transfer, initial repairs to pre-existing defects, improvements, and any private-use portion.
- Interest follows the purpose of the borrowing, not the security
- Capital works: 2.5% per year for 40 years
- Second-hand plant not depreciable in used residential property
- Initial repairs are capital, not deductible
Interest — the most commonly miscalculated deduction
Interest is deductible to the extent the borrowed money was used to produce income. That rule follows the purpose of the funds, not the property securing the loan. Redraw $40,000 from your investment loan to buy a car and that portion's interest is private for the life of the loan, apportioned out every year until repaid.
The same logic makes an offset account better than a redraw for investors: money sitting in an offset hasn't repaid the loan, so drawing it out doesn't change the loan's purpose. Money redrawn from the loan itself does. Mixed-purpose loans should be split, and every split needs documenting.
Depreciation — the deduction most investors under-claim
Two separate categories. Capital works (Division 43) covers the structure — walls, roof, kitchen cabinetry, driveways — deductible at 2.5% a year for 40 years from construction, and available regardless of when you bought. Plant and equipment (Division 40) covers removable assets like ovens, air conditioners, blinds and carpet.
Since 2017, plant and equipment in a previously used residential property generally isn't depreciable by a later owner — but the capital works deduction survives, and any new assets you install are depreciable. A quantity surveyor's schedule costs $600–$800, is itself deductible, and on a property built after 1987 commonly unlocks several thousand dollars in the first full year.
Repairs versus improvements
A repair restores something to its previous condition — replacing broken tiles with equivalent tiles, fixing a leaking tap, repainting a weathered wall. Deductible immediately. An improvement makes something better than it was, or replaces an entire asset — a new kitchen, a rebuilt deck, replacing an old air conditioner with a bigger unit. Capital, claimed through depreciation or capital works.
Initial repairs — fixing defects that existed when you bought — are capital no matter how much they look like repairs. This catches out investors who buy a tired property, spend $15,000 making it rentable, and expect an immediate deduction.
Apportionment: availability, private use and part-year
Deductions apply for the period the property was rented or genuinely available for rent at a market rate. Advertising it above market, restricting who may rent it, or keeping it free for family use all reduce or eliminate the claim for that period. Holiday homes and short-stay properties need honest apportionment between income-producing and private use — this is a standing ATO focus area.
When you sell: CGT
Your gain is proceeds less cost base — purchase price plus stamp duty, legal fees, agent commission and capital improvements, reduced by capital works deductions already claimed. Individuals holding over twelve months get a 50% discount. If the property was ever your main residence, partial exemptions and the six-year absence rule can substantially reduce the taxable portion. Non-residents are generally denied the main residence exemption entirely, which makes the timing of a sale around a move overseas extremely consequential.
Frequently asked questions
Can I claim interest while the property is vacant?
Yes, provided it's genuinely available for rent — actively advertised at a market rent and not withheld for private use. Extended vacancy while renovating for capital improvement is a different matter, and needs care.
Is a depreciation schedule worth it?
For a property built after 1987 or substantially renovated, almost always. The report costs $600–$800 (deductible) and typically returns multiples of that in the first year alone. For an older, unrenovated property with no capital works history, it may not be.
Can I claim travel to inspect my rental?
Generally no. Travel expenses relating to residential rental properties are not deductible for individual investors, following the 2017 changes — including flights, car costs and accommodation for inspections. Commercial property and businesses carrying on a property investment business are treated differently.
How is the land tax on my Queensland investment property treated?
Land tax on an income-producing property is deductible in the year it's incurred. Note Queensland assesses land tax on the total taxable value of your Queensland landholdings above the threshold, so a second property can push you into liability for the first time.
What if I rent to family below market rent?
Deductions are generally limited to the amount of rent received in that arrangement. You can't claim a full year of expenses against a mates-rates rent — the ATO treats the shortfall as a private arrangement.
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