Tax Deductions for Rental Property Owners

Rental property deductions can make a meaningful difference to your tax — but the ATO consistently finds errors in rental schedules. Here's how the main categories work.

Expenses you can claim immediately

• Interest on the loan used to buy the property
• Property management and letting fees
• Council rates, water charges and land tax
• Landlord and building insurance
• Body corporate fees for ongoing administration
• Repairs and maintenance that restore something to its original condition
• Advertising for tenants

Expenses claimed over time

Capital works — the building structure and fixed improvements — are generally claimed at 2.5% a year for residential construction that started after 15 September 1987. Depreciating assets such as appliances and carpets are claimed over their effective life.

For residential properties acquired after 9 May 2017, you generally can't claim depreciation on previously used plant and equipment unless an exception applies. Borrowing costs over $100 are generally claimed over five years or the term of the loan, whichever is shorter.

Repairs versus improvements

Replacing part of a damaged fence is a repair. Replacing the whole fence with a better one is generally an improvement. And fixing defects that existed when you bought the property — 'initial repairs' — is capital, even if it looks like a repair.

Common mistakes

• Claiming interest on a redraw used for private purposes
• Claiming a full year of expenses for a holiday home used privately
• Treating initial repairs or renovations as immediately deductible
• Not splitting income and expenses according to legal ownership
• Claiming travel to inspect or maintain a residential rental property