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Investment properties have become popular over recent years, in part due to tax regulations that apply to them. You’ll often see property investment thrown around in personal finance guides and to an extent, it is one of the ways to diversify your wealth.

However, the primary reason why people are reluctant to commit to an investment property is that the tax implications on investment properties can be tricky to wrap your head around. 

Once you do your research, you’ll find that there are numerous tax deductions that can be leveraged to your advantage. That’s why at Homestar Finance, we’ve broken down the basics of investment property tax to make sure you don’t overlook any expenses when putting together your tax return.  

What are tax deductions?

A tax deduction is a portion of your income that can be excluded from tax duties when specific conditions are met. They need to be listed on your tax return at the end of the financial year. 

Most common forms of tax deductions include:

  • Retirement contributions
  • Charitable donations
  • Mortgage interest deductions
  • Investment property deductions
  • Work-related expenses

Though a tax deductible expense does not mean that you get the entirety of the cost back, it is excluded from your overall taxable income, potentially saving you thousands in dutiable fees.

Female finances for family, Home finance hand using laptop at home.

How do tax deductions work?

Though it may seem like an overly complicated process, tax deductions are quite simple to understand if you break it down at the basic level. 

Let’s say that our friend Jim earns $80,000 in taxable income a year. However, Jim holds an investment property where his tax deductible expenses amount to $18,000. He also made charity contributions of around $2,000. Then his taxable income would be reduced by $20,000 (total tax deductible expenses) and he will only pay tax on $60,000 of his income. 

What investment property tax deductions can I claim?

Luckily, there are a slew of investment property tax benefits that can be accessed by investors in Australia. These can range from general maintenance costs to home insurance and even council rates.

Some of these deductions are immediately tax-deductible, such as the cost of repairs and maintenance while the property is being leased out. Whilst you won’t be able to immediately claim expenses such as appliances, you will most likely be able to claim them through depreciation deductions in the future.

Moreover, even though some intangible expenses such as depreciation can be claimed come tax time, some expenses such as stamp duty may be unavailable outside first home buyer-specific concessions.

Investment properties are often cited as the key to financial freedom by a lot of financial advisors and sources available online. However, the expenses incurred from these investments can really eat away at your wallet if you don’t get on top of them early.

That’s why it’s absolutely essential that prospective property investors understand which expenses they can claim and what they can and can’t claim on their tax return. 

Immediately deductible rental property expenses include:

  • Agent fees
  • Advertising expenses
  • Bookkeeping and legal costs
  • Insurance
  • Pest control
  • Property improvement, maintenance and repair expenses
  • Property investment seminars or courses
  • Rates and taxes
    • Council rates 
    • Land tax
    • Strata fees
  • Stationary and phone costs

Deductible rental expenses that can be claimed over several years include:

  • Borrowing expenses
  • Depreciation deductions
  • Interest on your home loan
  • Negative gearing

Agent fees

Unless you’re keen on diving into the nitty gritty, usually you’ll have a real estate agent or property manager looking after your investment property.

Any fees paid to real estate agents in relation to your rental property is fair game and can be deducted from your overall taxable income at the end of the financial year. 

This may include fees paid to agents for:

  • Collecting rent
  • Communicating with tenants
  • Finding tenants
  • Maintaining property condition

However, it is worth noting that any fee or commission paid to an agent for the sale of an investment property will not be eligible for a tax exemption.

Advertising expenses

Unless you are leasing your property through a private engagement, it’s likely that you’ll have to do some form of advertising to attract prospective tenants. Thankfully, you can make an immediate deduction for any expenses related to advertising your property for lease. 

Most of these tax deductions cannot be claimed unless you are making rental income, so you’ll want to avoid extended periods of vacancy. 

Generally, depending on the location and condition of your property, finding a tenant can take anywhere between 1-6 weeks and tends to cost somewhere in the range of $100-600. 

Bookkeeping and legal costs

Unless you already work in the financial or legal sector, it’s likely that you’ll end up paying out of pocket for these services when it comes to rental property. 

Whether you end up consulting a financial advisor about your tax return at the end of the financial year, or you have to take a tenant to court over unpaid rent, the fees paid for these services would both be eligible for a tax exemption. 

Capital gains tax

Capital gains tax (CGT) is not necessarily a tax deductible expense, but it’s worth mentioning as it can potentially save you tens of thousands of dollars when paired with proper negative gearing strategies. 

The capital gains tax is the dutiable amount you incur from selling any large asset such as a business, property or shares. CGT is calculated by subtracting all expenses (including purchase price) from the sale value of the asset. This means that 100% of the profit made on the asset is added to your taxable income. 

CGT can be especially costly when it comes to property sales, as many houses will generate a profit of more than $100,000. However, if you have held on to the property for upwards of 12 months you will be eligible for a 50% discount on CGT, with only half of the profit contributing to your taxable income. 

This is why negative gearing and capital gains tax often go hand-in-hand. By leveraging the benefits of negative gearing, investors are able to hold on to their property for longer. More specifically, they can minimise the initial costs through negative gearing while the property valuation continues to grow over time. 


You can claim depreciation as a tax exemption for both the building itself, as well as any appliances that are provided to tenants throughout their lease.

According to ATO guidelines, as long as your rental property was constructed after 16 September 1987, you will be eligible for a 2.5% depreciation deduction on the original construction cost for up to 40 years. 

Moreover, you may still be able to claim depreciation expenses even if the property does not meet the above requirements if the property was extended or renovated after 16 September 1987. In this instance, you will still be able to claim depreciation deductions for the cost of the renovation or expansion.   

Unbeknownst to many, certain appliances made available to tenants throughout the lease, such as dryers, stoves, ovens, floorboards, carpets, etc. are also eligible for depreciation exemptions. However, the amount you can claim will depend on the “effective life” of the appliance and are at the discretion of commissioners. 

Depreciation is one of the most valuable deductions that can be claimed as an investment property tax benefit, so it’s definitely worthwhile getting a tax depreciation schedule (also tax deductible) for your assets to see exactly how much you can save.


Any costs paid out of pocket for insurance can be deducted from your assessable income. This includes costs of insuring the property itself, as well as costs associated with landlord insurance. 

Many investors are often initially reluctant to get landlord insurance if they already have home insurance, but it’s important to note that landlord insurance covers you for a variety of different situations that home and contents don’t cover you for, such as:

  • theft, vandalism, and malicious damage by tenants or guests
  • up to $20 million legal liability for death or injury to other people, or loss or damage to their property
  • loss of rent if the tenant defaults on the lease agreement
  • legal costs to recoup unpaid rent.

Interest on your home loan

As most homeowners may already be aware, you are able to claim interest charged on your mortgage as a tax-deductible expense.

You can claim tax breaks for all of your interest repayments, as long as the loan was not used for private purposes. You will not, however, be able to claim deductions for any principal repayments.

Although this may seem restricting you can think of it this way – over the course of your mortgage you will likely pay upwards of $20,000 in interest repayments per year. You can subtract all of it, as well as any additional loan fees from your taxable income.

This is why many savvy investors opt for an interest-only loan, as they can look to maximise their mortgage tax benefits for a handful of years while they lease and sell for a healthy profit, or refinance to a more appropriate loan later down the line.

Negative gearing

Negative gearing may seem highly complex at first glance, but it’s simple if you think of it as a way of subtracting your losses from your overall taxable income. 

Whether or not you are eligible for negative gearing tax breaks will depend on how much cash flow your investment property is bringing in. So if your overall expenses (loan repayments, maintenance, council rates, etc.) amount to more than the rental income you get from your property, you will be able to deduct the negative difference from your assessable income. 

Understanding the benefits of negative gearing is crucial to minimising initial expenses so that you are able to sell for a larger profit at some point in the future. As mentioned above, you can leverage negative gearing to ensure that capital gains tax doesn’t leave a gaping hole in your profits. 

Pest control

Both rental property owners and tenants can claim pest control on tax, depending on who covered the costs for the service. As long as the cost is within reason, you can generally claim it as an immediate deduction.

Although pest control deductions may not be as substantial as others on this list, it’s worth a mention, as it’s quite often overlooked by many property investors come tax time. 

Property improvement, maintenance and repair expenses

You are eligible to claim immediate deductions on any repair or maintenance work carried out to preserve the condition of the property. According to criteria provided by the ATO, improvements are also eligible as long as they are not substantial improvements (renovations) and were not carried out immediately after the purchase of the property.

Keep in mind that you must claim significant renovations as capital works deductions (depreciation deductions) over a 40-year period rather than an immediate deduction.

Some examples of improvement, maintenance and repair costs that you may be able to claim include:

  • Conditioning gutters
  • Garden upkeep and maintenance
  • Painting the inside and outside of the house to maintain condition and appearance
  • Plumbing work carried out to repair clogged drains, leaky pipes, toilets, etc.
  • Repairing or replacing tiles, wallpaper, carpets, etc. due to tenant damage or wear and tear
  • Repairing broken fencing
  • Replacing roof tiles or awnings after severe weather conditions
  • Repairing necessary appliances or machinery

Rates and taxes

Council rates

Local governments usually charge homeowners within the district an annual council rate that helps fund infrastructure, services and public amenities within the local area.

These fees will differ greatly on your location, but all of it can be written off as a tax deduction as long as the property is being rented out.

Land tax

Any properties that generate taxable income are eligible for land tax concessions.

However, it’s important to note that each state and territory applies its own regulations when it comes to land tax deductions. So just make sure to check with the appropriate state government department or seek professional advice to ensure that you are claiming back as much as possible.

Strata fees

Any homeowners residing on a strata will know that body corporate fees can soon start to add up out of the blue.

As we previously mentioned with council rates, any strata fees are also immediately deductible from tax as long the property is being rented out during the same period.

Stationary and phone costs

As long as you provide the necessary evidence that they are needed for the management of your property, any stationary, phone or internet expenses can be claimed as an immediate deduction.

How to claim investment property tax deductions

Most, if not all of your tax deductions will have to be claimed through your tax return at the end of the financial year, though there are some immediate deductions that can be reimbursed through individual application.

Unless you’re on top of all your expenses to the tee, it can be highly time consuming to put together your own statements come tax time. That’s why it’s usually recommended that you consult a financial professional or accountant to maximise your benefits and report your income as accurately as possible. 


Expenses that are not tax deductible


Rental income

Rental income is unfortunately not tax deductible and will make up a good chunk of your assessable income. Rental income includes any payments you receive whilst renting out the property, as well as any bond money that was deducted at the end of a lease.


On purchase of the investment property

When it comes to purchasing an investment property, there are a few things you may need to be aware of. Though investment properties do come with a myriad of tax benefits, the following items will not be available for exemptions or deductions when first purchasing your property:

  • Any renovations, repairs or improvements immediately after purchase
  • Conveyancing fees
  • Legal expenses
  • Property inspection fees
  • Purchasing price
  • Stamp duty

On the sale of the investment property

Since most of your expenses when you sell you property are considered a capital expense, they can actually reduce the amount of capital gains tax you’re liable to pay. Moreover, you may be able to access the 50% CGT discount if you have offset your losses. 

However, there are also some items that are not eligible for tax breaks upon selling your investment property and are as follows:

  • Any real estate agent or management fees 
  • Advertising fees
  • Conveyancing fees
  • Legal expenses

Although most of these are eligible for deductions when it comes to generating income through your property, you will not be able to access these benefits when selling property.

Buying an investment property?

Other than your own financial circumstances and loan structure, your priority considerations should be looking at how you can make the most of tax benefits associated with property investment. 

Investment property tax deductions example

Let’s put together a hypothetical scenario to show just how much tax you could save after familiarising yourself with all the potential investment property tax cuts. 

Say that our friend Claire has just taken out a home loan to fund her new 3-bedroom apartment that she intends to lease out for some passive income on the side. She hires an accountant to help with the bookkeeping for her new investment property.

She takes out a $600,000 variable rate, interest only investment loan with Homestar Finance at 5% p.a. 

Knowing that she will not be able to claim certain deductions until the property is fully leased out, she contacts a real estate agent for help with advertising and tenant management. 

When she begins to lease out her property, her tenant points out a few issues with peeling wallpaper and chipped tiling in the bathroom. Claire calls in the help of her local tradesman to repair these faults and applies for home and landlord insurance to prevent future mishaps. 

The property sits in an apartment block and was built on 20 September 2005 at a cost of $190,000. 

Under this scenario, Claire can shave off around $45,320 from her assessable annual income. 

Expense (First Year) Amount
Agent and Advertising Fees $700
Bookkeeping Fees   $300
Building Depreciation $3,500
Council Rates $500
Home and Landlord’s Insurance $4,200
Loan Interest $30,120
Strata Fees $2,000
Repair for Wallpaper and Tiling $3,000
Total $45,320

Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.  

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    Understanding more about investment property tax deductions

    Is stamp duty tax deductible?

    No, you will not be able to claim any deductions for stamp duty. 

    However, the amount you pay will be factored into the cost of buying property, which can help to reduce the amount of CGT when you look to sell it later down the line.

    Learn more about stamp duty

    Can I claim loan repayments?

    Partly, yes. You will not be able to deduct any of your principal loan repayments from your overall income, but any interest repayments made can be claimed.

    Is LMI tax deductible?

    Although LMI is highly unadvised for most circumstances, it is a tax deductible expense. It must be claimed over a 5 year period starting on the date of settlement, but you will be able to claim the full LMI premium as a borrowing cost deduction.

    What are the tax implications of refinancing an investment property in Australia?

    Although not immediate deductions, there are two main items that can be claimed when you are refinancing your investment property. These include the start-up borrowing costs and any loan application fees which include but are not limited to:

    • Application fees
    • Break fees or exit fees
    • Legal fees
    • Lenders mortgage insurance
    • Refinance stamp duty 
    • Registration fees

    If you have decided to refinance to a cash in or cash out refinance, then you will not be able to claim deductions for any part of the loan that was used for personal affairs (i.e. purchasing a car, shares, etc.)

    What happens if my deductions exceed income generated by my rental property?

    If your expenses are greater than the income the property generates, it means you are running at a capital loss.

    As mentioned in the negative gearing section, you can offset this loss against any other income you made over the financial year (i.e. salary from work) and reduce the tax you have to pay. 

    Does buying a house affect my tax return in Australia?

    Although there are first home buyers grants and incentives aimed to help residential homebuyers in Australia, the short answer is yes. 

    You can claim the interest charged on your home loan as a deduction, but you’ll need to be renting the property out, as residential property isn’t eligible for any other tax deductions.