Rental property tax deductions 2026: what you can claim, and the records to keep

Rental property tax deductions all land in one of the three buckets the ATO uses in its guidance on claiming rental expenses: deductible this year, deductible over several years, or not deductible at all. Get the bucket wrong and you either leave money on the table or hand the ATO an easy adjustment. In July 2022 the ATO said its Random Enquiry Program had found nine out of ten rental returns contained at least one error.

9 in 10

What has changed for 2026

On 20 May 2026 the ATO issued Taxation Ruling TR 2026/1 on rental income and deductions for individuals not in business, with two practical compliance guidelines (PCG 2026/2 on apportionment, PCG 2026/3 on holiday homes). The main shift is for holiday homes you also rent out, covered under apportionment below. The ATO won't spend compliance resources on it for expenses incurred before 1 July 2026, so 2026-27 is the first year it bites.

The negative gearing and CGT changes from the 2026-27 Budget are also now law, but they start on 1 July 2027, and the ATO says the negative gearing changes don't apply to your 2025-26 return. Properties held at 7:30pm AEST on 12 May 2026 are exempt from the negative gearing change. See our negative gearing explainer and what the CGT changes mean for landlords.

Ground rules for every claim

You can only claim what you actually paid (not water usage your tenant covered), and the property must be rented or genuinely available for rent on commercial terms. Asking well above market rent, or putting unreasonable restrictions on tenants, can mean it isn't. And some costs you can't deduct still count later, because they go into the cost base and reduce capital gains tax when you sell.

Expenses you can claim straight away

The ATO's Rental properties guide 2026 lists the costs you can generally deduct in the year you incur them. The main ones:

Loan interest. Usually the biggest deduction. You can claim interest on money borrowed to buy the rental, buy assets for it, pay for repairs or fund renovations, but not on any part used privately. Redraw $40,000 from a $600,000 investment loan to buy a family car and only 600/640 of the interest (93.75%) stays deductible. The ATO says you keep that split for the life of the loan; paying back the private part first doesn't fix it. Interest prepaid up to 12 months ahead is claimable.

Across all individual landlords, interest was also the largest single deduction category in the 2023-24 income year, according to the ATO's taxation statistics.

View data · Source: ATO Taxation statistics 2023-24, Snapshot table 5 (Chart 10)

Income year	Interest	Capital works	Other rental deductions
2019-20	21.5	4.3	23.2
2020-21	17.9	4.4	23.4
2021-22	15.9	4.4	24.1
2022-23	24.0	4.6	25.9
2023-24	32.2	4.8	27.9

Property manager fees. Management fees, letting fees and advertising for tenants, including agent fees incurred before the property is first available to rent.

Insurance. Building, contents, public liability and loss of rent cover. Insurance that pays out your loan if you die, become disabled or lose your job is private.

Rates, water, land tax and emergency services levies. Only the parts you pay. Land tax is claimed in the income year the liability relates to; if an assessment covers arrears, you amend the earlier return. Land tax thresholds vary by state, so check with your state revenue office.

Strata levies. Regular administration fund and general sinking fund contributions are deductible when incurred. A special levy for a capital improvement is not, though it may become capital works once the work is complete, according to the ATO's common property expenses page.

Repairs and maintenance. Genuine repairs to wear and damage that happened while the property was rented, and maintenance such as repainting faded walls or servicing a hot water system (see the traps below).

Running costs. Cleaning, gardening, pest control, bank charges, security patrols, postage, bookkeeping and tax agent fees for the rental.

Legal costs of running the tenancy. Evicting a non-paying tenant, suing for lost rent, or defending an injury claim. Legal costs of buying or selling go into the cost base.

Quantity surveyor fees, in the year you pay them.

Assets costing $300 or less. A $250 microwave is written off immediately, but not if it's part of a set: four $250 dining chairs are a $1,000 set.

Prepaid expenses under $1,000, or of $1,000 or more covering 12 months or less and ending by the end of the next income year, such as an annual insurance premium paid in March.

Repairs, improvements and initial repairs

The ATO says this is where landlords most often go wrong, and the difference is large. A $6,000 job claimed as a repair is a $6,000 deduction this year. As capital works it's $150 a year for 40 years. The ATO's approach comes down to three questions.

Is it fixing damage or wear from while you rented the property? That's a repair, claimable now: a cracked window pane, part of a gutter, a section of fence, a broken appliance. A modern equivalent material is fine. The ATO's example is replacing damaged fibro with plasterboard, which is still a repair.

Does it make the property better, add something new or change its character? That's an improvement, and it's capital works: a brick feature wall in place of that fibro, a remodelled bathroom or a new pergola.

Is it replacing a whole item? Also capital. The ATO treats a whole toilet or a full set of kitchen cupboards as an "entirety". Fixing part of it is a repair; replacing the lot isn't. Replaced fixtures go to capital works, new appliances to depreciation. A roof is different: it is part of the building rather than an entirety, and in the ATO's rental guide example, replacing a storm-damaged roof on a rental is a repair.

Initial repairs fix defects, damage or deterioration that existed when you bought the property. They are never an immediate deduction, even if you didn't know about the problem at settlement. Initial repairs to the building are generally capital works over 40 years; initial repairs to a depreciating asset aren't deductible but go into the cost base.

If you do the work yourself, you can claim materials but not your labour. When a job mixes repairs and upgrades, you can only claim the repair part if the costs are separated, so ask for an itemised invoice before work starts.

Capital works (Division 43)

Capital works covers the building and structural additions: construction costs, extensions, alterations, garages, patios, driveways, retaining walls and fences, plus structural improvements you make later.

For residential construction started after 15 September 1987, the ATO rate is 2.5% of the construction cost a year for 40 years. Construction started between 18 July 1985 and 15 September 1987 gets 4% a year over 25 years. Residential buildings started before that don't qualify, though later structural work may.

• The deduction is based on construction cost, not the purchase price, insured value or replacement cost.
• The claim starts only once the work is finished.
• Capital works you claim reduce your cost base when you sell, increasing the capital gain.

A townhouse with an estimated original construction cost of $400,000 gives $10,000 a year (2.5%) for whatever remains of its 40 years, apportioned for any part of the year it wasn't rented.

Depreciating assets (Division 40) and the second-hand rule

Depreciating assets are separately identifiable items, not part of the structure, that get replaced relatively often: carpets, blinds, dishwashers, ovens, washing machines, air conditioning units and furniture. You claim their decline in value over their effective life.

The ATO's residential rental property items table classifies common items. For assets acquired from 1 July 2019, it gives a dishwasher and removable carpet an effective life of 8 years. Benchtops, built-in cupboards, sinks, tapware and tiles are capital works instead.

Prime cost claims the same amount each year; diminishing value claims more up front. A new $2,000 dishwasher with an 8-year life gives $250 a year under prime cost, or $500 in the first full year under diminishing value, falling after that. Assets under $1,000 can be grouped in a low-value pool.

The second-hand rule

Since 9 May 2017, individual investors generally can't depreciate second-hand assets in a residential rental. Under the ATO's rules, that means assets previously used or installed by someone else, or used in your own home. In practice:

• Buy an established property and the carpet, blinds, oven and air conditioner aren't depreciable for you. Capital works on the building still is, as is anything brand new you add.
• Turn your home into a rental on or after 1 July 2017 and the furniture and appliances you lived with aren't depreciable.
• Buy new or substantially renovated and the assets are depreciable if no one previously claimed them and either no one lived there before you, or you bought within 6 months of completion.

The old rules still apply if you bought the property or asset before 7:30pm AEST on 9 May 2017 (and for assets moved in from your own home, installed them before 1 July 2017). They also don't apply to a business of letting properties or to excluded entities such as companies. Self-managed super funds are not excluded.

Depreciation schedules from a quantity surveyor

A depreciation schedule, usually from a quantity surveyor, estimates the building's construction cost for capital works and lists each depreciating asset with its value, effective life and yearly deduction. The ATO noted in June 2024 that it isn't mandatory, but you need credible evidence of construction costs to claim capital works.

Whether one pays for itself depends on the property:

• New build or off-the-plan: almost always worth it, covering capital works and all the new fittings.
• Established, built after 17 July 1985: often worth it for capital works alone. Ask the surveyor for a likely figure first.
• Built before 18 July 1985: usually only if there's been significant structural work since.
• Recently renovated by the vendor: ask for their renovation costs first. The ATO says a vendor who could claim capital works should give the buyer a capital works notice.

The fee is deductible. Order the report soon after settlement: the ATO warns reports can take a while, and a late one means amending your return.

Borrowing expenses

Loan set-up costs totalling more than $100 are spread over 5 years or the loan term, whichever is shorter, from the date of the loan, according to the ATO. If you pay out or refinance earlier, the remaining balance is deductible that year. They include loan establishment fees, lender's mortgage insurance, broker fees, lender title search and valuation fees, mortgage preparation and registration costs, and stamp duty on the mortgage.

Roughly, $2,400 of borrowing costs on a loan taken out on 1 July works out to about $480 a year for 5 years. Stamp duty on the property transfer, conveyancing and buyer's agent fees are not borrowing costs; they go into the cost base.

What you can't claim

• Principal repayments, or interest on a private portion of the loan.
• Travel to a residential rental since 1 July 2017, including car costs, flights, accommodation and meals for inspections, maintenance or visiting your agent. The exceptions are a business of letting properties and excluded entities, and the ATO says owning one or several rentals generally isn't a business.
• Acquisition and disposal costs: purchase price, stamp duty on transfer, conveyancing, buyer's agent and selling costs. These go into the cost base.
• Second-hand depreciating assets acquired after 7:30pm AEST on 9 May 2017, unless an exception applies.
• Vacant land holding costs incurred on or after 1 July 2019. Land stays "vacant" until a new home is lawfully able to be occupied and is rented or available for rent, so interest during a build is generally not deductible, according to the ATO.
• Costs paid or reimbursed by the tenant or anyone else.
• Your own labour, and seminars on finding a property to buy.
• GST credits. GST doesn't apply to residential rent, so you claim the full amount paid, including any GST.

Apportioning for private use, part-year rentals and holiday homes

If the property isn't rented or available for rent all year, most expenses are split by time, by floor area, or both.

Part-year rentals. Divide the days rented or genuinely available by the days owned. Move out and list the property from 1 October, and that's 273 of 365 days, so $20,000 of interest, rates and insurance becomes a $14,959 deduction. Costs that relate only to the rental, like the letting fee, aren't split.

Renting part of a property. For a granny flat, floor or room, use the tenant's exclusive area plus half the shared areas, as a share of the whole. A room in your own home that sits empty doesn't count as available for rent.

Family or friends below market. If rent is below market for private reasons, the ATO limits your deductions to the rent received, so there's no rental loss. Charge market rent and keep evidence of how you set it.

Holiday homes. A holiday home is one you, your family or friends use for holidays or recreation. Under the ATO's guidance, unless it's used or held mainly to produce rental income, you can't claim ownership expenses such as interest, borrowing expenses, council and water rates, strata fees, land tax, and repairs and maintenance, even for the nights it's let. Rental-specific costs such as booking fees, advertising fees and cleaning after guests remain deductible.

"Mainly" depends on actual use, including whether you block out peak periods for yourself. The ATO's examples contrast an actively marketed apartment the owner uses for a few weeks in the low season (deductions allowed, private weeks apportioned out) with a beach house reserved for family every summer and let for about 10 weeks a year (ownership costs denied).

Rental property tax deductions at a glance

The errors the ATO keeps finding

In June 2024 the ATO said most rental property owners were making errors despite 86% using a registered tax agent, and that incorrectly reported interest made up an estimated 42% of the $1.2 billion rental property tax gap for individuals not in business. The recurring problems:

• The traps above: claiming all the interest after a private redraw or refinance, claiming borrowing costs or special strata levies in one year, and claiming for periods the property wasn't genuinely available or was used privately.
• Treating capital items as repairs, such as new blinds, cooktops and air conditioners. In one ATO case study the owner also claimed a second cooktop bought for their own home; the rental had one kitchen.
• Double-dipping on agent-paid expenses. A plumber paid from the rent appears on your statement and you also get the invoice. Claim it once.
• No records. If you can't substantiate it, you can't keep it.

The ATO also collects data from property management software providers covering around 2.3 million individuals a year, according to its data-matching protocol (last updated August 2024, covering the 2023-24 to 2025-26 financial years), alongside separate programs for investment loans and landlord insurance. Some of it prefills myTax. If your return doesn't match, expect contact. You'll generally have 28 days to respond before the ATO acts.

How long to keep rental property records

Under the ATO's rental guide, each expense record needs the supplier's name, the amount, what was supplied, the date the expense was incurred and the date of the document. If an invoice lacks the payment date, a bank statement fills the gap. Paper or digital is fine, but records must be in English or readily translatable.

• Income and expense records: 5 years from 31 October, or from the date you lodge if later, and longer if you're in a dispute with the ATO.
• Purchase, sale and capital records: at least 5 years after you sell, per the ATO's CGT record keeping page. Hold a property for 20 years and that's 25 years or more for the contract and renovation invoices.
• Depreciating assets: each asset's cost, start date, effective life, method, yearly deduction and closing value, plus original invoices. Your depreciation schedule or a spreadsheet does the job.

Our rule of thumb: if it touches the property, keep it until 5 years after you sell.

What to ask your property manager for

If you use an agent, most income and many expenses flow through their trust account, so their paperwork is the backbone of your return. Ask for these rather than assuming they'll arrive (and if you're choosing a property manager, ask about reporting).

• End of financial year statement: rent received and every expense paid for 1 July to 30 June. Check it reconciles with monthly statements and your bank deposits.
• Monthly owner statements, for apportionment and catching errors.
• Every invoice paid on your behalf. A statement line saying "plumbing $385" doesn't show whether it was a repair or a replacement.
• Entry condition and routine inspection reports, with photos. They show what was wrong at the start (initial repairs) versus damage during a tenancy.
• Leases and renewals, showing rent and the periods let.
• Vacancy evidence: listing dates, advertised rent and enquiry logs, showing empty weeks were genuinely available.
• Bond records. Bond you keep for unpaid rent or damage is income.

If statements are thin or late, see our guide to keeping your property manager accountable.

What to keep yourself

Lender, insurer, council, strata and revenue office paperwork usually comes to you, and self-managing landlords hold everything.

What this means for landlords

1. Check your loan statements for redraws and exclude interest on any private portion.
2. Review repair invoices over $300 and reclassify improvements, initial defects and whole-item replacements before lodging.
3. Get a depreciation schedule if you don't have one and your property was built after 17 July 1985 or has had structural work since.
4. Reconcile your agent's EOFY statement against your bank and invoices so nothing is claimed twice.
5. Keep a private use log for any holiday home you also rent out, and don't block out peak periods for yourself.

If you're new to all this, our new landlord guide puts tax alongside your other obligations. Apportionment, holiday homes and second-hand assets turn on your specific facts, so a registered tax agent is worth the fee, which is itself deductible.