Investment Property Tax Deductions: What You Can (and Can't) Claim

Owning an investment property comes with a long list of tax considerations that go well beyond simply declaring rental income. Done properly, the deductions available to landlords can meaningfully reduce the cost of holding a property. Done carelessly, they're also one of the areas the ATO scrutinises most closely through its data-matching programs. Here's a practical breakdown of what's deductible, what isn't, and where landlords most often get it wrong.

The general rule

The basic test the ATO applies is whether an expense was incurred in producing the rental income. If a cost relates directly to renting out the property — managing it, maintaining it, financing it — it's generally deductible in the year it's incurred. If it relates to acquiring the property, improving its long-term value, or your personal use of it, it's treated differently, usually added to the cost base for capital gains purposes instead.

Commonly claimed deductions

**Interest on the investment loan.** This is typically the largest deduction for a geared property and is fully deductible provided the loan was used to purchase or improve the income-producing property. Mixed-purpose loans (part investment, part personal) need careful apportionment — this is a frequent area of ATO review.

**Property management fees and commissions.** Fees paid to a property manager or letting agent are deductible in full.

**Council rates, water charges, and land tax.** All deductible for the period the property was rented or genuinely available for rent.

**Insurance premiums.** Landlord insurance and building insurance are deductible.

**Repairs and maintenance.** Genuine repairs — fixing what's broken, like a leaking tap or a damaged fence — are immediately deductible. This is one of the most misunderstood areas, covered in more detail below.

**Body corporate fees, advertising for tenants, and bank fees** related to the rental account are all deductible.

**Depreciation.** Both capital works (the building structure itself) and depreciating assets (carpets, appliances, blinds) can be claimed over time, and this is frequently the most under-utilised deduction available to landlords.

Repairs vs improvements: the distinction that trips people up

This is consistently one of the most contested areas in rental property tax returns, and the line isn't always intuitive.

A **repair** restores something to its original condition — replacing broken roof tiles, fixing a section of damaged guttering, repainting a wall that was already painted. These are immediately deductible in the year the expense is incurred.

An **improvement** goes beyond restoration — replacing an entire kitchen with a better one, adding a new deck that didn't exist before, or renovating a bathroom to a higher standard than it originally had. These are treated as capital improvements, not immediate deductions, and are instead depreciated over time or added to the cost base for capital gains purposes when the property is eventually sold.

A common trap: if a tenant moves out and you use the opportunity to renovate rather than simply repair, even modest upgrades can tip an expense from "repair" into "improvement" territory. Each item needs to be assessed on its own facts, and getting this wrong is one of the more common reasons rental property returns get flagged for review.

Depreciation: the deduction landlords leave on the table

Many landlords — particularly those who've owned a property for years — assume depreciation isn't worth pursuing, especially on an older property. This is often a costly assumption. While capital works deductions depend on the construction date of the building, depreciating assets like carpets, blinds, hot water systems, and air conditioning units can often still be claimed even on older properties, provided they haven't already been fully depreciated.

A professionally prepared depreciation schedule, usually from a qualified quantity surveyor, is one of the highest-value documents a landlord can commission. The cost of preparing one is itself tax-deductible, and the deductions it unlocks frequently outweigh that cost many times over across the life of the schedule.

Travel to the property

It's worth flagging clearly: travel expenses to inspect, maintain, or collect rent from a residential investment property are **not deductible** for individual investors. This rule has applied since 2017 and still catches people out, particularly those who held a property before the rule changed and assume the old treatment still applies.

Vacant periods and "genuinely available for rent"

Deductions can generally still be claimed during periods the property is vacant, provided it's genuinely available for rent — actively advertised, priced at market rent, and not being withheld for personal use. Where a property sits vacant for an extended period without active marketing, or rent is set unrealistically high, the ATO can reduce or deny deductions for that period on the basis the property wasn't genuinely available.

Borrowing against equity for personal use

A frequent mistake: refinancing or drawing additional equity from an investment property loan to fund a personal expense — a car, a holiday, renovations on the family home — and continuing to claim the full interest deduction. Only the portion of the loan actually used for income-producing purposes remains deductible. Mixing investment and personal borrowing on the same loan account, without clear apportionment, is a common trigger for ATO review and can be genuinely difficult to untangle after the fact.

Co-ownership and apportionment

Where a property is jointly owned, income and deductions are generally split according to legal ownership share, not according to who actually pays the bills or who needs the deduction more in a given year. This applies regardless of informal agreements between co-owners, and getting it wrong across multiple returns can create complications if reviewed later.

Why this is worth getting right

Rental property data is one of the most heavily data-matched categories the ATO reviews, cross-referencing land titles, rental bond authorities, and financial institution data. Genuine deductions properly claimed are not something to be cautious about — they exist precisely so investment property ownership is taxed fairly. But claims that aren't well-supported, or distinctions like repairs versus improvements that are handled carelessly, are a common source of amended assessments, interest charges, and unnecessary stress well after the original return was lodged.

How ATA Accountants can help

We work with property investors holding everything from a single rental to multi-property portfolios, and we routinely identify depreciation and deduction opportunities that have been missed in prior returns. We'll also make sure repairs, improvements, and loan apportionment are documented properly from the outset.

**Book a consultation** to make sure your investment property return is both accurate and optimised.