Tax Deduction for Holiday Rental Property? 2025–26 Guide

Updated for the 2025–26 income year (tax returns lodged from 1 July 2026), with 2026–27 changes noted. Reviewed 19 October 2026.

Renting out a beach house, bush retreat or apartment through a short-stay platform can help cover the costs of owning it. You can claim deductions, but only for the periods the property is rented or genuinely available for rent, and you must declare all the rental income.

1. When can I claim deductions for a holiday home?

Expenses are deductible for:

• the periods the property is rented out, and
• the periods it is genuinely available for rent.

The ATO looks closely at whether a holiday home is genuinely available. Warning signs include: advertising that limits exposure (for example, only word of mouth), an unreasonably high rent or restrictive conditions, refusing reasonable bookings, a location or condition that means tenants are unlikely, and the owner, family or friends using it during peak periods. Periods of private use, or free or discounted use by family and friends, aren't deductible.

New ATO view: holiday homes must be used mainly to earn rent

The ATO has finalised its view (TR 2026/1 and PCG 2026/3, issued May 2026) on section 26-50, which treats a holiday home as a "leisure facility":

• A property is a holiday home if you use it, or hold it for use, for your own holidays or recreation, or for family and friends free or at a reduced rate.
• Ownership and use expenses, such as loan interest, borrowing costs, council and water rates, body corporate fees, land tax, and repairs and maintenance, can only be claimed if the holiday home is used or held for use mainly to produce rental income.
• If it isn't, you can't claim any ownership or use expenses. You can still claim costs that relate only to renting it out, such as advertising, booking or platform fees, and cleaning after guests.
• "Mainly" isn't a simple day count. The ATO looks at actual use, how much time is dedicated to renting versus private use, and whether it's available to rent during peak periods (school and public holidays, peak season). Blocking out peak periods for your own use, refusing bookings, restrictive conditions, or locking guests out of major features all point against you.
• Timing: the ATO has said it won't devote compliance resources to applying section 26-50 to expenses incurred before 1 July 2026. Your 2025–26 claims are therefore unlikely to be reviewed on this point, but from 2026–27 the green/amber/red zone approach in PCG 2026/3 applies.

2. What expenses can be claimed (if the property is mainly a rental)?

For the rented/available periods (apportioned where needed):

• interest on the loan used to buy the property
• council rates, water rates, land tax and body corporate fees
• insurance (building, contents, landlord, public liability)
• repairs and maintenance, cleaning, gardening, pest control
• advertising, platform and property management fees
• electricity, gas and internet you pay for guests
• decline in value of eligible depreciating assets and capital works deductions

3. What can't be claimed

• Travel to the property to inspect, maintain or collect rent – not deductible for residential rentals since 1 July 2017, unless you're carrying on a rental property business or are an excluded entity
• Depreciation on second-hand plant and equipment (for example, existing appliances or furniture) acquired after 7:30pm on 9 May 2017, with limited exceptions
• Costs for periods of private use or when the property isn't genuinely available, and the cost of cleaning or repairs after you, family or friends have stayed
• Capital improvements as an immediate deduction (these are generally claimed over time as capital works)

4. Worked example

All figures are example figures only, for a hypothetical owner.

Scenario A – mainly a rental. Kim's coastal unit is listed year-round with a manager. In 2025–26 it is rented for 250 nights, including most school holidays, and is otherwise available. Kim stays 2 weeks in the off-season. Ownership costs (interest, rates, insurance, body corporate) are $24,000. Kim apportions for private use: 351 ÷ 365 days = 96%, so about $23,080 is deductible, plus 100% of platform fees and cleaning between guests.

Scenario B – mainly a holiday home. Kim's family blocks out every summer and Easter holiday, and the unit is rented for 40 nights a year. From 2026–27 the ATO would likely treat this as not mainly used to produce rent. None of the $24,000 ownership costs would be deductible, only advertising, booking fees and cleaning after guests. (For 2025–26, the ATO has said it won't focus compliance on this rule.)

5. Records and ATO data matching

Keep a booking calendar showing rented, available and private days, plus all receipts and statements. Short-term accommodation platforms report transactions to the ATO under the Sharing Economy Reporting Regime (since 1 July 2023), so income will be matched against your return.

6. Capital gains tax when you sell

A holiday home is generally not your main residence, so capital gains tax applies when you sell. If you've held it for more than 12 months, individuals currently get a 50% CGT discount (see the 2027 change below). Records of purchase costs, capital improvements and previously claimed capital works deductions are essential.

Negative gearing and CGT changes from 1 July 2027

Changes announced in the 2026–27 Budget are now law and start on 1 July 2027:

• Negative gearing for residential property is limited to new builds. Properties held at the announcement time (7:30pm AEST, 12 May 2026) are exempt and keep the current treatment until sold. For established homes bought after that time, rental losses can only be offset against residential rental income or residential property capital gains, with unused losses carried forward – not against wages.
• The 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax on capital gains, applying only to gains that accrue after 1 July 2027. Eligible new builds can choose the existing discount or the new arrangements.

None of this changes your 2025–26 return, but it matters for buying and selling decisions now. See our negative gearing guide and capital gains tax guide, and speak with us before you sign a contract.

Related: rental property deductions.