Tax Deduction for 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.

Can I claim rental property expenses as a tax deduction? Yes. You can claim expenses for the period your property is rented or genuinely available for rent. Rental income is taxed to the owners in line with their legal ownership share (as shown on the title), and expenses are claimed in the same proportion.

1. Expenses you can claim immediately

• advertising for tenants
• body corporate fees and charges (for day-to-day expenses)
• council rates, water charges and land tax
• cleaning, gardening and lawn mowing, pest control
• insurance (building, contents, landlord, public liability)
• interest on the loan used to buy or improve the property. If you redraw or use part of the loan for private purposes (a car, a holiday, your own home), the interest on that part isn't deductible, so you need to apportion it
• property agent fees and commissions
• repairs and maintenance (fixing damage or wear and tear that happened while the property was rented)
• bank charges on the rental loan account; electricity and gas you pay
• quantity surveyor fees and tax agent fees

2. Expenses you claim over several years

• Capital works (Division 43): the original construction cost of the building and later structural improvements (extensions, a new deck, fencing, a driveway). For residential buildings this is generally 2.5% a year over 40 years where construction started after 15 September 1987, or 4% where it started between 18 July 1985 and 15 September 1987, counted from when construction was completed. It's based on construction cost, not the price you paid. If you don't know the cost, a quantity surveyor's estimate is accepted (and their fee is deductible). Capital works deductions reduce your CGT cost base.
• Decline in value of depreciating assets such as ovens, hot water systems and carpets – but for residential rentals you generally can't claim this for second-hand assets acquired after 7:30pm on 9 May 2017 (unless you're carrying on a rental property business or are an excluded entity)
• Borrowing expenses, such as loan establishment fees, lender's mortgage insurance, mortgage broker and valuation fees, title search fees charged by the lender, and stamp duty on the mortgage, are claimed over 5 years or the loan term if shorter. If they total $100 or less, claim them in full in the year. You can't claim borrowing costs on any part of the loan used for private purposes, and stamp duty on the property transfer is not a borrowing cost (it goes into the CGT cost base).

3. Expenses you can't claim

• Travel to inspect, maintain or collect rent for a residential rental property – not deductible since 1 July 2017 (unless you carry on a rental business or are an excluded entity)
• Purchase costs such as stamp duty on transfer (these form part of the cost base for CGT)
• Initial repairs to fix damage or defects that existed when you bought the property can't be claimed immediately. Depending on the work, they may be claimable as capital works over 40 years, or form part of the CGT cost base
• Improvements as an immediate deduction (claim as capital works instead)
• Expenses for periods of private use or when the property isn't genuinely available for rent
• Holding costs for vacant land from 1 July 2019, with limited exceptions
• ATO interest charges (GIC/SIC) incurred from 1 July 2025

4. What is negative gearing?

A property is negatively geared when deductible expenses are more than the rent. The net rental loss can reduce your other income, such as wages.

Example (illustrative figures only): if your other taxable income is $70,000 and your property has a net rental loss of $20,000, your taxable income becomes $50,000.

5. Capital gains tax when you sell

When you sell an investment property, a capital gain or loss usually arises. Under current rules, if you're an individual and owned the property for more than 12 months, you may be entitled to the 50% CGT discount.

Example (illustrative figures only): a $50,000 capital gain on a property held for more than a year would mean $25,000 is included in your taxable income (before any capital losses).

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.

Records

Keep loan statements, agent statements, receipts, depreciation schedules and records of purchase and sale costs for at least 5 years after you sell (because they affect CGT). For a full breakdown, see our rental property deductions guide. See also holiday rental property and our occupation and industry deduction guides.