The golden rule for maximising rental deductions is simple. If an expense directly relates to earning rental income, you can probably claim it. Things like:

• Loan interest
• Property management fees
• Repairs that fix things (not improve them)
• Insurance
• Rates

Travel to inspect your property is off-limits for residential properties, and anything that improves your property counts as a capital improvement, not a repair.

Here’s your quick mental test: Does this expense help me earn rental income right now? If yes, it’s likely deductible. Does it make my property worth more or better than before? That’s probably a capital improvement you’ll need to depreciate over time.

Bottom line: Focus on ongoing expenses, keep every receipt, and learn the difference between fixing and improving. Your future self (and bank account) will thank you.

The good news: What you can claim on your tax return

Let’s start with the exciting stuff — the expenses that can legitimately reduce your tax bill. The ATO’s rental property expense guidelines are actually quite generous when you understand what qualifies.

Loan interest: Your strongest friend

For most investors, this is the heavyweight champion of deductions. Every dollar of interest you pay on loans used to buy, build, or improve your rental property is fully deductible. Whether your property is making money or bleeding cash doesn’t matter. If the loan was for investment purposes, the interest is claimable.

Property management and letting fees

Using a property manager? Every fee they charge (from tenant finding to rent collection to maintenance) is fully deductible. Even if you manage the property yourself, you can claim advertising costs for finding tenants and other direct letting expenses.

Repairs and maintenance

This is where it gets interesting. You can claim repairs that restore your property to its previous condition, but not improvements that make it better than before fixing a broken tap. Deductible. Upgrading to a fancy new mixer? That’s a capital improvement.

If replacing like with like, old carpet with a similar carpet, broken fence palings with new palings, that’s usually a repair. But if you’re upgrading from basic to premium, or adding something that wasn’t there before, that’s typically an improvement.

Insurance and ongoing Costs

All your property insurance premiums are deductible. Building insurance, contents insurance if you provide furnishings, and landlord insurance. Council rates, water rates, strata fees, and land tax are all claimable too, as long as you’re the one actually paying them.

Professional services

An accountant’s fee for preparing your rental property tax return is deductible. Legal fees for lease agreements or tenant disputes? Yes. Even the cost of getting a depreciation schedule prepared is claimable (and usually pays for itself many times over).

The reality check: What you can’t claim

Now for the part that often catches investors off guard. Some expenses that seem obviously related to your rental property are specifically excluded, and claiming them incorrectly can result in penalties that make a bad tenant look like a minor inconvenience.

Travel expenses: The big no

Since 1 July 2017, you can’t claim any deductions for the cost of travel you incur relating to your residential rental property unless you are either in the business of letting rental properties or an excluded entity (like a company). Period. Doesn’t matter if you drive across town or fly interstate, whether the inspection was urgent, or if you combined it with other business. The ATO’s travel restrictions for residential properties are crystal clear and non-negotiable.

Pre-rental repairs: Timing is everything

Did you do some work before first renting out your property? Those costs are generally considered capital improvements, not deductible repairs. The property needs to be earning income (or genuinely available for rent) for repair costs to be deductible.

Capital improvements: The long game

Added air conditioning where there was none? Built a deck? Renovated the kitchen? These improvements make your property more valuable, which means they can’t be claimed immediately. Instead, they might be eligible for depreciation over many years or added to your property’s cost base for capital gains tax purposes.

Personal Use: The honesty test

If you or your family use the property for holidays or personal purposes, you need to reduce your deductions proportionally. Did you use your beach house rental for a two-week family holiday? You can’t claim expenses for those two weeks, and you need to apportion the other annual expenses fairly.

Depreciation: The deduction that keeps on giving

Here’s where many investors miss out on serious money. Depreciation allows you to claim deductions for the decline in value of your property and its contents over time, even when you’re not spending any money out of pocket.

Two types of depreciation

Building depreciation (capital works) applies to the structure itself for properties built or renovated after specific dates. You can claim 2.5% of the construction cost each year for 40 years for most residential properties. For a building that cost $400,000 to construct, that’s $10,000 per year in deductions.

Plant and equipment depreciation covers removable items like appliances, carpets, blinds, and air conditioning. Each item has an “effective life” over which it can be depreciated.

The catch for established properties

For properties purchased after 9 May 2017, you generally can’t claim plant and equipment depreciation on second-hand items that came with the property. But here’s the opportunity: any new items you add can still be depreciated from day one.

Strategies for 2025-26 and beyond

Successful rental property tax management isn’t just about claiming deductions after you’ve spent the money. Strategic thinking about timing, record-keeping, and planning can significantly boost your investment returns.

Timing your expenses

Consider bunching deductible expenses into years when you need them most. Expecting a higher income this year? Bringing forward some maintenance work can provide valuable tax relief. Planning to be in a higher tax bracket next year? Maybe defer some discretionary repairs.

The prepayment opportunity

You can often prepay certain expenses, such as insurance premiums and property management fees, to accelerate deductions into the current year. If you prepaid a rental property expense, such as insurance or interest on borrowed money, that covers a period of 12 months or less and ends on or before 30 June 2025, you can claim an immediate deduction.

Record-keeping that actually works

Forget the shoebox approach. Modern property management apps can automatically categorise expenses, store receipts digitally, and generate reports that make tax time a breeze. Some even integrate with accounting software to streamline the whole process.

Annual strategy reviews

Your property’s tax position should be reviewed annually, not just at tax time. New purchases, renovations, and changes in tax law can create opportunities you might miss if you’re only thinking about tax once a year.

The costly mistakes we see every year

After decades of helping property investors, we’ve noticed the same expensive mistakes keep cropping up. Learning from others’ errors can save you significant money and stress.

The missing depreciation schedule

This is probably the biggest money-loser we see. Investors assume depreciation isn’t worth bothering with, or they don’t realise it exists. A professional depreciation schedule typically costs $600-800 but often identifies thousands in annual deductions.

Repair vs improvement confusion

The classic mistake: claiming a kitchen renovation as a repair when it’s clearly an improvement. The ATO has seen this before, and getting it wrong can result in penalties plus interest on the tax you should have paid.

Inadequate record-keeping

“I know I had that receipt somewhere” isn’t a defence that works well with the ATO. Poor record-keeping not only means you might miss legitimate deductions, but it also puts you at risk if your return is reviewed.

Personal use miscalculations

Some investors conveniently forget about the week they spent at their holiday rental, or they allow family to stay without charging market rent. The ATO expects honesty in apportioning expenses, and getting this wrong can be costly.

Travel expense claims

Despite clear guidance, some investors still try to claim travel costs for property inspections. This is a red flag for ATO reviews and can lead to deeper scrutiny of your entire return.

Staying compliant: Your safety net

The ATO takes rental property deductions seriously, and having proper documentation isn’t just good practice — it’s your insurance policy against penalties and stress.

The five-year rule

Keep all records related to your rental property for five years after lodging your tax return. This includes receipts, bank statements, loan documents, insurance policies, photos of repairs, and any professional reports.

What good records look like

For each expense, you should be able to show what was purchased, when, how much it cost, and how it relates to earning rental income. Photos of damage before and after repairs can be invaluable for substantiating claims.

Professional documentation

Keep detailed records of any professional advice or services. Property management agreements, legal correspondence, and tax preparation fees all need proper documentation showing the specific services provided.



Regular reviews and updates

Don’t wait until tax time to organise your records. Set up systems to capture expenses throughout the year, and review your deductions quarterly to ensure you’re not missing anything or claiming something incorrectly.