What can you claim on an investment property?

What investment property expenses can you claim at tax time?

Currently, there are around 2 million Australians who own an investment property. However, when tax time rolls around, a surprising number of investors miss out on deductions they’re legally entitled to claim.

Whether it’s interest on your loan, repairs, or depreciation, it is important to know exactly what you can and can’t claim to maximise your returns.

Familiarising yourself with these rules will undoubtedly improve your cash flow. At the same time, it will also give you peace of mind that you’re staying on the right side of the Australian Taxation Office (ATO).

For those who aren’t quite sure what investment property expenses they can claim on their tax return, we’ve put together this handy guide.

The difference between immediate and long-term investment property deductions

When it comes to claiming investment property expenses, the ATO splits deductions into two main categories: immediate and long-term.

• Immediate deductions are those you can claim in full in the same financial year the expense was incurred, such as council rates, loan interest, and repairs.
• Long-term deductions are spread over several years and typically relate to capital works or depreciation on assets like appliances and carpets.

Both can provide you with some tax relief, but only if you know what you are eligible to claim.

Immediate tax deductions you can claim on your investment property

To qualify for immediate tax deductions on an investment property, it must either be already rented or genuinely available for rent.

This essentially means you’re actively advertising it at a market-appropriate rate, and it’s in a liveable condition. In this case, a wide range of operating and administrative costs can be claimed as deductions in the same financial year they’re incurred.

Here’s a breakdown of commonly claimed immediate deductions, based on current guidance from the ATO.

Property maintenance and operational expenses

Routine upkeep is part and parcel of being a responsible property owner. Thankfully, the ATO allows many maintenance costs to be claimed straight away. These include the following.

Cleaning, gardening, and lawn mowing

You’ll be pleased to know that hiring a cleaner between tenants or paying for monthly lawn mowing services are costs that can be claimed in full.

This means that if you pay for a professional cleaner to prepare your property for new tenants, that is an eligible deduction.

Pest control services

Annual pest sprays or rodent treatment are also considered part of general upkeep. So, if you have to fork out to cover a termite treatment, that expense is fully deductible for the same financial year.

Body corporate fees

If your investment property is in a unit or apartment block, you’ll probably need to pay body corporate fees. The good news is that you can usually claim administrative fund fees (like your regular quarterly strata fees) as a tax deduction.

However, special levies, like a one-off $2,000 payment to replace the roof, aren’t immediately deductible. These larger costs are treated as “capital works” and may need to be claimed gradually over time.

Repairs and maintenance

Even with the best tenants, wear and tear is bound to happen in any investment property. The good news is that repairs, like patching up walls or replacing broken tiles, are usually tax-deductible.

For instance, if you pay $350 to repair a leaking shower, this qualifies as an immediate deduction.

Financial and administrative expenses

In addition to property maintenance and operational expenses, there are several financial costs you can claim as immediate deductions. They will need to relate to managing your investment and include the following.

Advertising for tenants

Online listings, flyers, or agent fees for leasing campaigns are all deductible.

So, if you spend money advertising your property on a real estate website, you can claim that back.

Property insurance

Premiums for building, contents, and landlord insurance (including public liability or loss of rent cover) can be claimed in the year you pay them.

Subsequently, you should be aware that your landlord insurance premium is tax-deductible.

Council rates, water charges, and land tax

When the property is rented or available for rent, the ongoing costs of council rates, water charges, and land tax are fully deductible.

Interest on loans

If you have an investment property loan, you can claim the interest on it, but not the principal. So, if you paid your loan interest over the year, that’s claimable.

Pre-paid expenses

If you pre-pay something up to 12 months in advance, such as insurance, you can generally claim the whole amount in the current year.

Therefore, paying an upfront sum for a year's worth of building insurance will be acceptable as an immediate deduction.

Legal expenses

Legal costs related to managing your rental income, like getting advice on lease agreements or resolving a tenancy issue, can also be tax-deductible. For example, if you consult a lawyer about a tenant-related question, their fee may be something you can claim on your tax return.

Stationery, phone, and internet

If you manage your property, you can claim a portion of your admin-related expenses. If you spend $60 on postage and $120 on calls to tenants, both are eligible for deductions.

Understanding what you can claim as deductions helps you stay on top of your finances and make sure you're claiming everything you're entitled to.

What investment property deductions can you claim over time?

Some investment property expenses can’t be claimed in full straight away, but are deducted over several years.

These are known as long-term deductions and generally relate to the property’s structure, major assets, or certain loan-related costs. Therefore, it's worth taking the time to understand what falls into this category.

Based on ATO guidance, here are three long-term deductions you should know about.

Capital works and structural improvements

Capital works deductions relate to the building’s structure and any permanent improvements, such as extensions or renovations. You can typically claim 2.5% of the construction cost each year for up to 40 years. This starts from when the property was built or substantially improved.

Some eligible capital works expenses include new buildings, structural additions (like a garage or deck), and major renovations such as retiling an entire bathroom.

Even initial repairs made right after purchase, such as replacing damaged roof tiles or rewiring old electrical systems, are treated as capital works if they improve the asset’s value.

To put this into context, if you spend $20,000 adding a new deck to your rental property, you can claim $500 per year (2.5%) for the next 40 years, provided the property remains income-producing.

Capital allowances (depreciating assets)

Depreciating assets are items that decline in value over time, such as air conditioners, ovens, and carpets. You can claim deductions for these items based on how long they’re expected to last, as set by the ATO.

If you buy brand new assets (like an oven, air conditioner or carpet) and install them in your rental property after 9 May 2017, you can usually claim depreciation on them, as long as the property is used to earn rental income.

However, second-hand assets generally can’t be claimed in residential properties bought after that date. The only exceptions are if you’re a property developer, a business entity, or you bought and installed the second-hand assets before the rule change in 2017.

Imagine you install a brand-new $2,000 dishwasher in your rental property. Depending on the ATO’s depreciation rate, you may be able to claim $400 per year over five years as the asset declines in value.

Borrowing expenses

Some costs associated with taking out your investment property loan can’t be claimed upfront but must be spread over five years or the life of the loan (whichever is shorter). These include:

• Loan establishment fees
• Title search fees
• Lenders Mortgage Insurance (LMI)
• Mortgage broker fees
• Costs for preparing loan documents or property valuations

To help you calculate these claims, the ATO provides a handy borrowing expenses calculator.

Investment property expenses you can’t claim

There are plenty of deductions available to property investors, but just as many things you can’t claim at tax time. The ATO has clear rules around non-deductible expenses, and getting it wrong could lead to an audit.

Here are some of the most common non-claimable expenses:

• Expenses paid by tenants, such as utility bills (you can only claim what you personally cover).
• Acquisition and disposal costs, including conveyancing fees, stamp duty on purchase, and legal fees associated with buying or selling.
• Travel costs to inspect or maintain your rental property, which are no longer claimable for individual investors.
• Loan principal repayments, as only the interest portion is deductible.
• Second-hand depreciating assets in existing residential properties purchased after 9 May 2017 (unless you're a property developer).
• Expenses related to private use, such as if the property was used by you or your family during part of the year.
• Borrowing costs over $100 need to be claimed gradually over the life of the loan. You can’t claim the full amount all at once.

Knowing what you can and can’t claim can save you a lot of potential headaches when it's time to fill in your tax return.

Why good recordkeeping matters for property investors

If you intend to claim tax deductions on an investment property, it is essential to keep accurate and up-to-date records.

The ATO requires you to substantiate every expense with proper documentation. So, make sure you have all receipts, invoices, loan statements, and depreciation schedules on hand.

Without the right paperwork, you may not be able to claim deductions you're entitled to, or worse, you could face penalties for incorrect reporting.

Overall, having clear, organised records makes it easier to complete your tax return. Additionally, you will be better placed to respond to ATO queries and work with your accountant to maximise your tax position.

Final thoughts on claiming investment property deductions

There are plenty of immediate deductions and long-term claims you can make. So, if you want to maximise the return on your investment property, you need to know what you can and can’t claim.

DiJones is here to support your property journey every step of the way. Whether you're buying, managing, or selling, our team can guide you with expert advice tailored to your goals.

Please contact us today or request a property appraisal to better understand your property's value and earning potential.

FAQs

Can I claim tax deductions if my property isn’t rented out yet?

Yes, but only if the property is genuinely available for rent. This means it must be advertised at market rates, be suitable for occupation, and not be used for private purposes.

If so, according to the Australian Taxation Office (ATO), any investment property tax deductions, such as advertising for tenants, property management, or basic maintenance expenses, can be claimed, even before your first tenant moves in.

Are body corporate fees and strata levies tax-deductible?

Yes. Investment property owners can claim body corporate administrative fund fees as an immediate property tax deduction. However, special levies used for capital improvements, like roof repairs or major structural work, may need to be claimed over time as part of capital works deductions.

What happens if I make a capital gain or capital loss when selling?

If you sell your investment, you may be subject to capital gains tax (CGT). A capital loss can offset future capital gains, but it can’t be deducted from your regular taxable income. It’s important to speak to a business accountant or tax advisor to understand the tax implications of selling your property.

Can I claim lenders mortgage insurance (LMI) and mortgage broker fees?

Yes, but these borrowing costs must be claimed over five years or the life of the loan, whichever is shorter. This applies to things like LMI, broker fees, and some bank fees related to your loan.