Every category of deduction you can claim against rental income in Australia, plus what's changing from 1 July 2027.
Australian residential property investment is built on the deduction system. The ATO lets you claim a long list of holding costs against your rental income, and where the deductions exceed the rental income, the loss can currently be offset against your salary - what's commonly called negative gearing. Both the deduction list and the negative gearing rules are changing for new acquisitions from 1 July 2027. Here's the full current picture.
These come off your rental income in the year you incur them. The ATO's residential rental properties guide is the authoritative source.
| Category | What it covers | Notes |
|---|---|---|
| Interest on the loan | The interest portion of mortgage repayments used to buy or improve the property | Principal is not deductible. Offset account interest savings reduce the deductible amount. |
| Council and water rates | Government charges on the property | Includes water access charges; tenant-paid water usage isn't your deduction |
| Land tax | State-imposed land tax (where applicable) | Threshold and rate varies by state |
| Body corporate fees | Administrative fund and sinking fund contributions | Special levies for capital works typically aren't immediately deductible |
| Insurance | Building, contents (for landlord-supplied items), landlord insurance | Public liability included |
| Property management fees | Real estate agent commissions for managing the rental | Letting fees, statement preparation |
| Advertising for tenants | Costs of listing the property | Online listing fees, photography, signs |
| Repairs and maintenance | Restoring to original condition (not improvements) | See "Repairs vs improvements" below |
| Gardening and pest control | Routine maintenance of grounds | Lawn mowing, pest treatments |
| Cleaning between tenancies | End-of-lease and bond cleans | If you pay for them |
| Accountant and quantity surveyor fees | Cost of professional tax services and depreciation schedules | Both are deductible |
| Bank charges | Fees on the loan account or rental account | Loan establishment fees are deductible over 5 years or loan life, whichever is shorter |
Two separate depreciation regimes apply to residential property:
The cost of constructing the building (and substantial improvements) is deductible at 2.5% per year over 40 years. This applies to residential properties built after 17 September 1987. A $250,000 construction cost = $6,250 per year in deductions for 40 years. Most owners need a quantity surveyor's depreciation schedule to claim this properly - a one-off $500-800 cost that typically recovers $2,000-5,000 in first-year deductions.
Carpet, blinds, hot water systems, dishwashers, air conditioners and similar items depreciate at various rates based on their effective life. Since the 2017 reforms, owners of established residential property can only claim plant and equipment depreciation on assets they actually purchased - not on items that came with the property when bought. New builds are unaffected. This is one reason brand-new property has historically offered better deduction profiles than older established stock.
A repair restores something to its original condition. An improvement upgrades it beyond original condition. The distinction matters because repairs are 100% deductible in the year incurred; improvements become capital works, deductible at 2.5% per year over 40 years.
Renovations done before the property is rented out for the first time generally fall into capital works regardless of how they'd be classified later. The intent matters.
The 2026-27 Federal Budget restricted negative gearing for new acquisitions of established residential property. The deduction list above doesn't change. What changes is what happens when deductions exceed rental income:
See our detailed piece on the 2027 negative gearing and CGT changes for the full picture.
Get a quantity surveyor's depreciation schedule done in year one - the cost is itself deductible and the deductions it unlocks typically recover the cost many times over. Keep every invoice, receipt and bank statement related to the property for at least 5 years after the CGT event. Use a separate bank account or loan for property-related transactions to make annual tax prep dramatically easier. And get a registered tax agent involved if the property's complex - mistakes are expensive, and agent fees are deductible.
Disclaimer: This article provides general information about investment property deductions and is not financial or tax advice. Rules vary based on individual circumstances, property type and timing. Refer to the official ATO website and consult a registered tax agent for advice on your specific situation.