Tax time can be complicated for property investors, particularly when determining which rental property expenses can be claimed immediately and which must be deducted over several years.
For the 2025–26 financial year, Australian rental property owners may be entitled to claim a range of expenses associated with earning rental income. However, expenses must be correctly classified, supported by appropriate records and apportioned where a property was not available for rent for the entire year.
This guide explains some of the most common rental property tax deductions and the expenses landlords should discuss with their accountant or registered tax adviser.
When can you claim rental property expenses?
Generally, an expense may be deductible when it is incurred while a property is rented or genuinely available for rent.
A property will usually need to be advertised at a realistic market rate and made reasonably available to prospective tenants. Simply stating that a property is available may not be sufficient if unreasonable restrictions make it unlikely that a tenant could rent it.
Expenses may need to be apportioned where:
- the property was only rented for part of the financial year;
- the owner or their family used the property privately;
- only part of the property was rented;
- the property was rented below market value;
- an expense also related to the owner’s private use; or
- the loan was partly used for private purposes.
The Australian Taxation Office provides further guidance on how rental expenses are claimed and apportioned.
Rental property expenses that may be claimed immediately
Certain expenses may be deductible in the financial year in which they are incurred, provided they directly relate to earning rental income.
Property management and leasing fees
Fees paid to a licensed property manager for managing or leasing a rental property will generally be deductible. These may include:
- ongoing property management fees;
- letting and leasing fees;
- tenant advertising costs;
- routine inspection fees;
- preparation of tenancy documents;
- rent collection costs; and
- certain administrative charges.
A detailed annual income and expenditure statement from your property manager can help simplify the preparation of your tax return.
Loan interest
Interest charged on money borrowed to purchase a rental property will generally be deductible while the property is rented or genuinely available for rent.
Only the interest component is normally deductible—not repayments of the loan principal.
Care should also be taken when refinancing or withdrawing money from an investment loan. The deductibility of interest depends on how the borrowed funds are used, rather than which property secures the loan.
If part of the loan is used for private purposes, the interest expense must generally be apportioned.
Council rates, water charges and strata levies
Landlords may be able to claim expenses such as:
- council rates;
- water usage or service charges paid by the landlord;
- land tax, where applicable; and
- ordinary strata or body corporate administrative levies.
Special levies used to fund major capital improvements may need to be treated differently. Your accountant should review the purpose of each special levy before it is claimed.
Landlord insurance
Premiums for insurance relating to the rental property will generally be deductible. This may include:
- landlord insurance;
- building insurance;
- public liability insurance; and
- contents insurance for landlord-owned furnishings.
Private insurance or any portion unrelated to the rental property cannot ordinarily be claimed.
Repairs and maintenance
The cost of repairing damage or deterioration resulting from renting the property may be immediately deductible.
Examples can include:
- repairing a leaking tap;
- replacing broken glass;
- repairing a damaged fence;
- servicing an air-conditioning system;
- repairing a faulty appliance;
- clearing blocked plumbing; and
- repainting deteriorated areas between tenancies.
A repair generally restores an item to its previous condition without significantly improving it.
Work that replaces an entire asset, improves the property or corrects damage that existed when the property was purchased may be considered capital expenditure. These costs may need to be claimed over time or included in the property’s cost base.
Correctly distinguishing between a repair and an improvement is one of the most important parts of preparing a rental property tax return.
Cleaning, gardening and pest control
Landlords may be able to claim reasonable costs incurred in maintaining the rental property, including:
- professional cleaning;
- lawn mowing and gardening;
- tree trimming;
- pool maintenance;
- pest inspections; and
- pest treatments.
These expenses must relate to periods when the property was earning rental income or was genuinely available for rent.
Accounting and tax-related expenses
Fees paid to a registered tax agent for preparing the rental property section of a tax return may be deductible.
However, fees associated with purchasing the property, arranging ownership structures or preparing documents of a capital nature may be treated differently.
Legal expenses
Some legal expenses directly connected with earning rental income may be deductible. Examples may include costs associated with recovering unpaid rent or addressing certain breaches of a residential tenancy agreement.
Legal expenses connected with purchasing or selling a property, defending ownership, or undertaking capital improvements are generally not immediately deductible.
Expenses claimed over several years
Not every rental property expense can be claimed in full during the year it is paid.
Borrowing expenses
Borrowing expenses may include:
- loan establishment fees;
- mortgage broker fees;
- lender’s mortgage insurance;
- title search fees charged by the lender;
- valuation fees required for loan approval; and
- certain costs of preparing and registering mortgage documents.
Where total deductible borrowing expenses exceed $100, they are generally claimed over five years or the term of the loan, whichever is shorter.
Capital works deductions
Capital works deductions may be available for qualifying construction expenditure, including certain structural improvements.
Eligible works can include:
- the original building construction;
- structural renovations;
- extensions;
- retaining walls;
- built-in cupboards;
- bathroom renovations;
- kitchen renovations; and
- other permanent improvements.
The applicable deduction rate depends on factors such as the type of construction and when it commenced. A qualified quantity surveyor can prepare a tax depreciation schedule where the original construction costs are unavailable.
The ATO provides detailed information about working out capital works deductions.
Depreciating assets
A depreciating asset is generally an item with a limited effective life that is expected to decline in value.
Examples may include:
- air-conditioning units;
- hot water systems;
- appliances;
- curtains and blinds;
- carpets;
- security systems; and
- removable furniture.
Depending on the asset, its cost and the relevant tax rules, a deduction may be available immediately or progressively over its effective life.
Restrictions apply to deductions for previously used—or second-hand—depreciating assets in residential rental properties. In many circumstances, an individual investor cannot claim the decline in value of a second-hand asset that was already installed when the property was purchased.
The ATO’s guidance explains the treatment of depreciating assets in rental properties.
Expenses that generally cannot be claimed immediately
Rental property owners generally cannot claim an immediate deduction for:
- the purchase price of the property;
- stamp duty on the property purchase;
- conveyancing costs associated with purchasing or selling;
- loan principal repayments;
- costs relating to personal use of the property;
- expenses paid by the tenant;
- improvements and renovations of a capital nature;
- certain initial repairs required when the property was purchased;
- travel expenses for inspecting or maintaining a residential rental property, subject to limited exceptions; and
- expenses for periods when the property was not rented or genuinely available for rent.
Some acquisition and disposal costs may instead form part of the property’s capital gains tax cost base.
Holiday homes and short-term accommodation
Additional care is required where a rental property is also used as a holiday home or short-term accommodation.
Expenses will generally need to be apportioned for periods when:
- the owner stayed at the property;
- family members or friends used it privately;
- it was rented to relatives or friends below market value; or
- restrictions prevented the property from being genuinely available to the public.
Owners should retain booking records, advertisements, rental calendars and evidence of the market rate charged.
Record-keeping for rental property owners
Accurate records make it easier to prepare a tax return and substantiate deductions if the ATO requests further information.
Useful records include:
- property management statements;
- rental ledgers;
- invoices and receipts;
- loan statements;
- council and water notices;
- strata levy notices;
- insurance statements;
- lease agreements;
- advertising records;
- depreciation schedules;
- contracts relating to improvements;
- evidence of private use; and
- records showing how borrowed funds were used.
Records associated with purchasing, improving and selling a property may be required when calculating capital gains tax, so they should not automatically be discarded after a standard record-keeping period.
Common rental property tax mistakes
Some of the most common mistakes include:
- Claiming loan principal repayments as interest.
- Claiming improvements as immediate repairs.
- Failing to apportion expenses for private use.
- Claiming expenses when the property was not genuinely available for rent.
- Claiming travel expenses without checking the applicable restrictions.
- Claiming the decline in value of ineligible second-hand assets.
- Failing to declare all rental income.
- Incorrectly dividing income and deductions between co-owners.
- Discarding invoices or supporting records too early.
- Assuming every special strata levy is immediately deductible.
How professional property management can help at tax time
Professional property management can make the end-of-financial-year process more organised by maintaining clear records of:
- rent received;
- management and leasing fees;
- repairs and maintenance;
- water charges;
- strata and council payments made on behalf of the owner;
- advertising costs; and
- other property-related expenditure.
At Moshav Realty, we provide landlords with detailed financial statements and supporting documentation to assist their accountant or tax adviser.
Our boutique property management service is designed to help Sydney property investors protect their assets, maintain accurate records and achieve better long-term outcomes.
To discuss the management of your investment property, contact Moshav Realty on 02 9188 5000 or visit moshav.com.au.
Important disclaimer
This article provides general information only and does not constitute taxation, financial or legal advice. Tax outcomes depend on individual circumstances and taxation rules may change. Property owners should obtain advice from a registered tax agent, accountant or suitably qualified adviser before lodging a tax return or making an investment decision.
Information is current as at July 2026.
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