Investment Properties and Tax Tips

Tax Deductions for Property Investors: and other tax tips

Investing in property comes with a range of tax considerations, and the 2026–27 Federal Budget has made tax planning even more important for property investors. The Government has announced proposed changes to capital gains tax and negative gearing, while the ATO continues to pay close attention to rental property claims, holiday homes and private use.

That does not mean the tax benefits of property investment have disappeared, but it does mean investors need to be more deliberate about how they manage records, apportion expenses, structure their borrowings and plan for the long term.

Taxable income to declare on investment properties

All income earned from each property must be declared, as investment income is subject to income tax. If you have multiple properties, keep the records for each property separate to make your tax return more efficient.

Below is a list of the types of income that must be declared:

• Rental income. Rent received, whether paid directly to you or through an agent or an online management platform, must be declared. Rent includes recurring regular amounts as well as any lump sum amounts paid in advance.
• Rental bonds retained. If a tenant causes damage or defaults on rent payments and you keep their rental bond, this counts towards your assessable income.
• Insurance payouts received as compensation.
• Rental property expenses reimbursed by the tenant, for example if they have caused damage and you have paid for the cost of fixing the damages, or if they have reimbursed you for water.
• Extra fees received, for example letting or booking fees.
• Government rebates, for example for installation of solar utilities.
• Capital gains. If a profit is made when you sell a property, Capital Gains Tax (CGT) may apply. If the property is sold within 12 months of ownership, the profit from the sale is subject to full CGT. If you hold the property for over 12 months before selling, you qualify for a 50% CGT discount. This means that only half of the capital gain needs to be included in your tax return.

You will need statements or recipient created tax invoices from agents or management platforms and documents for all other payments received.

Investment property tax deductions

Owning an investment property can involve a range of expenses, and many of them may be deductible where the property is rented or genuinely available for rent. The ATO’s rental property guidance makes clear that deductions depend on the property actually being used, or genuinely available, to produce rental income.

Below are some expenses you may be able to claim to optimise your investment property deductions. These costs are simple to keep track of as you'll receive a tax invoice or receipts for payments relating to the tax deductible expense. It's important to note that record keeping is required by the Australian Taxation Office (ATO) for all rental property income and expenses to verify claims. Accurate records make it much easier when it comes time to claim tax deductions.

Common tax deductions:

• Advertising costs and expenses to help you find tenants
• Body corporate fees
• Council rates
• Water supply charges
• Land tax
• Cleaning, gardening, pest control and property maintenance costs
• Insurance premiums (including lenders mortgage insurance and landlord insurance)
• Property management fees
• Repairs and maintenance
• Some legal expenses incurred
• Bank fees

Other deductible expenses that require calculation

Some tax deductible expenses incurred will require calculations to determine the amount you are eligible to claim.

Investment property loan interest

Loan interest is one of the most important deductions for many property investors, but it needs to be carefully apportioned based on how borrowed funds are used.

Your bank statements will show your loan repayment amounts paid, as well as the interest charged each month. If you have a loan used purely for investment purposes (an investment loan or mortgage for your investment property), you can simply claim the sum of the interest expenses over the reporting period. It's a good idea to keep your personal loans separate to investment loans, as any interest incurred on personal loans is not tax deductible. You can claim interest paid for your investments only.

For example, if you refinance an investment property mortgage and use some of the funds to purchase a caravan for your upcoming holiday, the portion of the interest expense relating to the caravan will not be tax deductible.

Depreciation

Investment property depreciation is a tax deduction associated with the decline in value of the property due to the natural wear and tear of your investment property. Claiming depreciation deductions is not as simple as recording expenses, as it's a non-cash deduction and needs to be calculated based on a few different metrics.

Depreciation is calculated differently depending on whether certain elements of the property are classified as capital works or plant and equipment assets.
Capital works deductions (or building allowance) entail the depreciation of the building's structure and fixed assets like walls, roofs, and plumbing. Investors can claim deductions for capital works spread over 40 years at a rate of 2.5% annually.

Plant and equipment depreciation relates to the devaluation of removable assets within the property, such as carpets, appliances, and window coverings. The depreciation rates for each individual asset is the determined by the ATO, based on the assets effective life.  

To correctly and compliantly claim depreciation deductions, it's essential to have a tax depreciation schedule prepared professionally for each rental property.

Investment property expenses you can't claim

Some expenses cannot be claimed. These include stamp duty, loans and repayments, some legal fees and expenses and some insurance premiums.

Understanding the difference between deductible expenses, capital costs and private costs is important to getting your tax return right.

Federal Budget changes to CGT and negative gearing

The 2026–27 Federal Budget announced proposed changes to the way capital gains and residential property losses will be treated for tax purposes.

Under the current rules, individuals who sell an investment property after holding it for more than 12 months may generally be eligible for the 50% CGT discount. This means only half of the capital gain is included in their taxable income.

From 1 July 2027, the Government has announced that the 50% CGT discount will be replaced with a discount based on inflation. This means investors would generally be taxed on the real capital gain, rather than the full nominal gain. A minimum tax rate of 30% would also apply to capital gains after indexation.

The proposed CGT changes are intended to apply to gains arising after 1 July 2027. Investors in new builds would be able to choose between the current 50% CGT discount and the new inflation-based arrangements.

The Budget also announced changes to negative gearing for residential property. From 1 July 2027, negative gearing will generally be limited to new builds. For established residential investment properties acquired after 7:30pm AEST on 12 May 2026, rental losses would no longer be deductible against an individual’s broader taxable income, such as salary and wages. Instead, those losses would generally be quarantined and carried forward to offset future residential property income, including capital gains.

Existing residential investment properties held before 7:30pm AEST on 12 May 2026 are expected to be grandfathered under the current negative gearing rules.

These changes are significant, but the detail matters. The tax outcome for an investor may depend on when the property was acquired, whether it is a new build or established property, when the gain arises, how the property is financed and whether the legislation passes in its final form.

Property investors should seek advice before making decisions based on the Budget announcement, particularly if they are considering buying, selling, refinancing or restructuring their portfolio.

What property investors should review now

The proposed changes make it even more important for property investors to understand their position before making major decisions.

Investors may want to review:

• whether each property is new or established
• when each property was acquired
• whether any losses are being offset against other income
• whether existing loans are structured correctly
• whether records clearly separate private and income-producing use
• whether any planned purchases, sales or refinancing decisions could be affected by the proposed rules

It is also important not to make rushed decisions based on headline changes alone. Tax is only one part of an investment decision, and the right approach will depend on the investor’s broader financial position, cash flow, goals and timeframes.

Holiday homes and private use require extra care

This is one of the main areas now attracting closer ATO attention.

If a property is used partly as a holiday home, or it is used privately by you, your family or your friends, you generally cannot claim deductions for the private-use portion. The ATO says deductions need to be apportioned on a fair and reasonable basis, and in some cases deductions may be denied altogether where a property is not genuinely available for rent or is mainly held for private use.

This is particularly relevant for holiday homes and short-stay properties. A property might look like an investment on paper, but if it is blocked out for private stays, only made available during peak periods, or not genuinely marketed for rent, that can affect what can be claimed.

Good records are essential here. Investors should keep evidence of:

• when the property was genuinely available for rent
• when it was occupied by tenants
• when it was used privately
• how expenses were apportioned between private and income-producing use

Read more about what the new draft ruling means for property investors.

Good records matter more than ever

Tax on investment properties is one of those areas where mistakes are easy to make.

The ATO pays close attention to rental property claims, and the risk tends to increase where investors blur the line between private use and income-producing use, fail to apportion mixed expenses, or overclaim based on assumptions rather than records.

Keeping thorough and organised records can make tax time easier and help support your position if questions arise later.

Get help to simplify your property records

Tax matters for property investors can be complex. The Australian Taxation Office (ATO) keeps a close eye on tax returns that involve property investment, as it is easy to make mistakes. There are a range of issues to consider, including claiming the right deductions, correctly treating loan interest, understanding depreciation, the period of rental availability, private use of the property, legal contracts, and whether there is any positive or negative gearing.

Getting these details right can make a real difference to your after-tax return, both now and over the long term.

We’d love to help ensure you are claiming the right deductions and making the most of your investment property this year and beyond. If you need advice on investment property deductions or managing the tax side of your property portfolio, our team can help.

We're here to help

If you need more advice on claiming an investment property tax deduction, please contact our team.

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