Which property expenses are tax-deductible? An investor's checklist (Australia)

Ask ten investors what they can claim on a rental property and you'll get the same confident list — interest, rates, insurance, repairs — and then, somewhere around "the trip to inspect it" or "the new kitchen", it quietly goes wrong. The deductible items are the easy part. Where it gets expensive is the grey zone: a cost that feels like a repair but is really a capital improvement, or money spent before the place ever earned a dollar of rent. The ATO knows exactly where that line is, and it audits people who don't.

Here's our honest take, and it shapes the whole article: most over-claiming on rental properties isn't dishonesty. It's an honest muddle between a repair and an improvement, and between revenue and capital. Get those two distinctions straight and you'll claim everything you're entitled to — and nothing that lands you a please-explain letter.

The deductible checklist: what you can claim now

Start with the good news. While your property is rented — or genuinely available for rent on commercial terms — the costs of holding and running it are generally deductible in the same income year you incur them. This is the list most people get right, and it's worth keeping in front of you so you don't miss anything:

• Loan interest — usually the single biggest deduction. The interest, not the principal: only the interest portion of your repayment is claimable.
• Council & water rates — council rates, water rates and charges, and any emergency-services levy.
• Land tax — claim it in the income year the liability relates to, not necessarily the year you pay it.
• Strata / body-corporate fees and charges (note: amounts paid into a special-purpose or sinking fund for capital works can be treated differently — not always an immediate deduction).
• Landlord & building insurance.
• Property management / letting-agent fees and commissions.
• Repairs & maintenance — work that restores the property to its original condition (fixing, not improving). More on this crucial distinction below.
• Pest control, gardening & cleaning — pest control, gardening and lawn mowing, and cleaning.
• Advertising for tenants.
• Accountant / tax-agent fees — and the cost of managing your tax affairs for the property.
• Bank & loan fees — bank and ongoing loan fees, stationery, phone and postage relating to the rental.

Two big categories sit slightly apart because they're claimed over time, not all at once — and they're where real money lives:

• Capital works (Division 43) — the building structure itself, plus structural improvements, extensions and alterations. You generally claim these at 2.5% a year over 40 years (4% over 25 years for certain older or specific-use buildings). A depreciation schedule from a quantity surveyor is how most investors capture this.
• Decline in value (Division 40) — the "plant and equipment": carpets, blinds, ovens, dishwashers, hot-water systems, air conditioners and so on. These are written off over their effective life — but there's a major catch for second-hand assets, covered below.
• Borrowing expenses — loan establishment fees, lender's mortgage insurance, title search and mortgage-stamp fees. If they total more than $100, you spread the deduction over the life of the loan or 5 years, whichever is shorter — you don't claim it all upfront. (If they total $100 or less, claim it in the first year.)

Repair or improvement? The distinction that catches everyone

This is the one that quietly causes most of the trouble, so it's worth being precise. A repair restores something to the condition it was in — fixing a leaking tap, mending a section of fence, replacing a few broken roof tiles, repainting a weathered wall. A repair is deductible immediately. An improvement makes something better than it was, or replaces it with something of a different character — a new kitchen, a re-built deck, a renovated bathroom, ducted heating where there was none. An improvement is capital works: you claim it slowly through depreciation, not in one hit.

The ATO's own example is clean: fix the dishwasher and you can generally claim it now; buy a new dishwasher and you can't — that's a depreciating asset (and if it costs more than $300, it's written off over its effective life, not claimed immediately). Replacing a worn carpet like-for-like leans toward repair; ripping out carpet and laying floorboards is an improvement. When in doubt, ask whether you've restored the thing or upgraded it.

The common mistakes: what investors wrongly think they can claim

This is the valuable part. Each of these is something investors regularly try to claim — and the ATO regularly disallows. None of them are obscure; they're the predictable result of the repair-vs-improvement and revenue-vs-capital confusion we started with. Read them as a checklist of things NOT to claim straight away.

• Initial repairs. Fixing defects, damage or wear that already existed when you bought the place — even if you only discover them later — is capital, not an immediate repair. The classic case: you buy a tired rental, fix the broken fence and patch the damaged walls in the first few months. That's remedying a pre-existing condition, so it's capital, not a year-one deduction. A genuine repair only becomes deductible once the wear-and-tear happened on your watch, while the property was earning income.
• Improvements and renovations claimed as "repairs". Renovating a bathroom, replacing a whole kitchen, building a deck, or upgrading to a better material is capital works — depreciated at 2.5% a year — not an immediate repair deduction. Calling a renovation a "repair" is one of the most common over-claims the ATO sees.
• Travel to inspect or maintain the property. Since 1 July 2017, most individual investors can't claim any deduction for travel relating to a residential rental — driving over to inspect it, collect rent, or do maintenance. (Narrow exceptions exist for taxpayers in the business of letting property and certain excluded entities, which rules out almost all mum-and-dad investors.)
• Depreciation on second-hand plant and equipment. Since the 2017 changes (assets acquired after 7:30pm AEST on 9 May 2017), you generally can't claim decline in value on previously-used plant and equipment in a second-hand residential property — the ovens, blinds and air conditioners that came with the place. You can still depreciate assets you buy new, and capital works (Div 43) on the building are unaffected.
• Holding costs on vacant land. Since 1 July 2019, you generally can't deduct the costs of holding vacant land — interest, rates, maintenance — while there's no substantial and permanent structure in use or available for use. This applies even to land you held before that date, and even while you're building, until the dwelling can lawfully be occupied and is available for rent.
• Purchase and sale costs as deductions. Stamp duty on the purchase, conveyancing, building and pest inspections at purchase, and selling agent's commission are capital costs. They don't reduce your income tax — they go into the property's CGT cost base and only matter when you sell. (Stamp duty on the lease, as opposed to the transfer, can be different — but the big purchase duty isn't an income deduction.)
• Borrowing costs claimed upfront. As above — loan establishment fees, LMI and title costs over $100 are spread over 5 years (or the loan term, if shorter), not claimed in full in year one.
• Costs during private use. If you (or family and friends at mates' rates) use the property — a holiday home is the obvious case — you must apportion and can't claim for the private periods, or for periods it wasn't genuinely available for rent on commercial terms. Blocking out peak season for your own use is exactly what the ATO looks for.
• Interest after the loan's purpose changes. If you redraw on the rental loan for something private, or mix private spending into it, the interest has to be apportioned for the life of the loan — you can't just repay the private bit later and claim the lot.

Newer and worth knowing

Be wary of anyone selling you a dramatic "new rule" each year — the core of rental deductibility has been stable for a while. The big structural changes are the 2017 travel and second-hand-asset restrictions and the 2019 vacant-land rule, all now well bedded in. That said, a couple of things are genuinely worth having on your radar:

• Rental deductions remain a standing ATO focus area. The ATO has repeatedly flagged rental claims as a top compliance priority, singling out the repair-vs-capital muddle, interest apportionment after a redraw, and missing records. With banks, property managers and rental-bond data all reported to the ATO, mismatches are easier than ever to spot — so the checklist above isn't academic.
• Short-stay levies (e.g. Victoria). If you let on Airbnb or Stayz in Victoria, a 7.5% short-stay levy applies to bookings from 1 January 2025. It's a state levy collected through the booking, not a federal income-tax change — how it interacts with your deductions depends on your circumstances, so confirm the treatment with your tax agent rather than assuming.
• Short-stay and part-year letting still means apportioning. None of the perennial apportionment rules go away just because you're on a nightly platform: private-use periods and periods not genuinely available for rent still have to be carved out.

If you've heard about proposed changes to negative gearing and the CGT discount — announced in the 2026–27 Federal Budget — note that those are about how losses and gains are treated, not about which running costs are deductible, and as of mid-2026 they're a Bill before Parliament, not law. We cover that separately; it doesn't change the checklist on this page.

Keep clean records and EOFY is boring (in a good way)

Here's the unglamorous truth behind every disallowed claim: it's usually not that the expense wasn't deductible — it's that the records weren't there to prove it, or a repair and an improvement got jumbled into one line. The ATO's position is blunt: if you don't have the records, you can't claim it, even with a tax agent. The fix isn't a frantic shoebox in July. It's tagging each cost when it happens, while you still remember what it was for.

That's exactly the workflow Kleev is built around. Because it reads your real bank transactions, you can tag each property expense to a category — interest, rates, strata, repairs — the moment it lands, and flag the awkward ones (was that a repair or an improvement?) while the invoice is still fresh. It separates loan interest from principal for you, so you're not guessing at the deductible slice. And the property statement grid lays the whole year out like a spreadsheet — categories down the side, months across the top — so by EOFY your deductible total is already totted up, with each cell traceable back to a real transaction instead of a memory. Tag your property's expenses through the year in Kleev →

None of this replaces a good accountant — it makes you a much cheaper, much less stressful client for one. You turn up with a clean, categorised year instead of a year to reconstruct, and the conversation moves to the genuinely tricky judgement calls (is this a repair or an improvement?) instead of "what was this $640 in March?".