The rule of thumb: costs of earning the rent are generally deductible (interest, management, rates, insurance, repairs); costs of buying the asset generally are not - they reduce your capital gain later instead. Getting the categories right in year one is worth real money and costs nothing but attention.
Tax is a big part of why investment property maths works differently from a home, and it's also where first-time investors most often leave money on the table or claim things they shouldn't. This guide is the plain-English map of the three buckets every cost falls into. It's general information: the specific numbers for your return belong to your accountant.
The three buckets every cost falls into
| Treatment | Typical items |
|---|---|
| Deductible in the year you pay | Loan interest · property management fees · council rates · water charges (owner-paid) · landlord and building insurance · land tax · repairs & maintenance · advertising for tenants · body corporate fees · accounting fees for the property |
| Deductible over time | Borrowing costs incl. LMI (typically over 5 years) · capital works (building construction, typically 2.5%/yr where eligible) · depreciating assets/fittings (rules differ for second-hand assets in established properties) |
| Not deductible (cost base instead) | Stamp duty on the purchase · conveyancing/legals on purchase and sale · buyer's agent fees · initial repairs to defects that existed at purchase · improvement works (claimed as capital works, not repairs) |
General categories only. Eligibility, rates and timing rules are set by tax law and change; second-hand asset and vacancy rules have specific conditions. Confirm treatment of every item with your accountant or the ATO before claiming.
Interest, your largest deduction
Loan interest is usually the largest deduction by far. As a rough illustration, a $520,000 balance at an indicative 6.5% investor rate accrues about $33,800 of interest in a year, deductible while the property is rented or genuinely available for rent.
Two structural points matter more than any percentage. The first is that purpose beats security: what makes the interest deductible is that the borrowed money bought the income-producing property, not which property the loan is secured against. That matters when you're using equity, where sloppy loan structure can mix deductible and private debt.
The second is that structure is set at purchase. Offset accounts (a savings account linked to the loan that lowers the interest), loan splits (keeping portions of the loan separate) and interest-only vs P&I decisions are far easier to get right on day one than to unwind later. That structure is broker territory, and it's exactly what Scott sets up for first-time investors.
Depreciation, often left unclaimed
Buildings and their fittings wear out, and tax law lets investors claim that decline. Construction costs can generally be claimed as capital works over decades where the property is eligible, and fittings (appliances, carpets, blinds) have their own schedules. Rules tightened in 2017 for second-hand assets in established properties, which is exactly the kind of property many first-time investors buy.
Ask a quantity surveyor whether a depreciation schedule is worth it for your property before paying for one. When it is, it's some of the easiest money in property; when it isn't, knowing that saves you the fee.
Negative gearing, and the 2027 line in the sand
When deductions exceed rent, the property runs at a loss, and under current rules that loss can generally offset your other income. That is negative gearing. From 1 July 2027, the reforms change that treatment for newly purchased established properties, with existing owners grandfathered and new builds handled differently.
If you're buying before or around that date, the timing genuinely changes the after-tax maths. The full breakdown is in our negative gearing and CGT changes guide, and the cash-flow side of a candidate purchase is modellable in the investment property cashflow calculator.
The habits that make tax time painless
- Separate everything from day one: a dedicated loan and account for the property, no mixed personal borrowing.
- Keep every receipt and the settlement statement - cost-base items matter years later when you sell.
- Record the property's availability for rent (listings, agent statements), because deductions rest on it.
- Get the repairs-vs-improvements call made by your accountant, not by optimism.
- Brief your accountant before your first purchase, not at your first tax return - structure decisions are worth more than deduction hunting.
Structure and timing are worth more than any single deduction. If you'd like the finance set up right before you buy, book a free discovery call with Scott, then loop in your accountant for the tax detail.
Frequently asked questions
What can I claim on an investment property?
Broadly: the costs of earning the rent. That includes loan interest (usually the largest deduction), property management fees, council rates, insurance, repairs and maintenance, land tax, and depreciation-style deductions for the building and eligible fittings. Costs of buying the property itself (stamp duty, conveyancing) generally aren't deductible; they form part of the cost base for capital gains tax instead.
Can I claim renovations and repairs?
Repairs and maintenance that fix wear and tear from renting (a broken hot-water system, a leaking tap) are generally deductible in the year you pay them. Improvements and renovations that go beyond restoring something (a new kitchen, an extension) are capital in nature and are typically claimed slowly as capital works deductions rather than immediately. The line between the two is genuinely blurry, so this is one for your accountant, with receipts.
Are stamp duty and LMI tax deductible?
Stamp duty on the purchase generally isn't deductible - it's added to the property's cost base and reduces your capital gain when you sell. LMI is different: as a borrowing cost on an investment loan it's typically deducted over five years (or the loan term if shorter). They're two costs with two completely different treatments, worth getting right in year one.
Last updated: July 2026
This article is general information only. It doesn't take into account your objectives, financial situation or needs, and it isn't credit, financial or tax advice. Figures are indicative estimates that vary by lender, state and property and can change, so we confirm your real numbers before you act. For tax questions, speak to a registered tax agent or accountant. Scott Lung, credit representative 567904 of Purple Circle Financial Services Pty Ltd (Australian Credit Licence 486112).
5 finance decisions to get right before buying your first investment property
- Build your first investment with a long-term property strategy.
- Understand the finance decisions that shape your borrowing power and future options.
- Make smarter decisions around your deposit, cash flow and loan structure before you sign a contract.
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