Owning an investment property in Australia comes with significant tax benefits. Understanding and maximising these deductions can save you thousands of dollars each year. This comprehensive guide covers every deduction you can claim in 2025, including the latest ATO rules and compliance requirements.

Complete List of Tax Deductions

1. Loan Interest (Biggest Deduction)

Interest on your investment property loan is typically your largest deduction.

What You Can Claim

✓ Interest on loans used to purchase the property
✓ Interest on loans for renovations/improvements
✓ Interest on loans to buy depreciating assets
✓ Loan establishment fees (over 5 years or loan term)
✓ Lender's mortgage insurance (over 5 years)

Important: Interest Tracing Rules

The ATO traces what the loan was used for, not what secures it. If you refinance and take out extra cash for personal use, that portion isn't deductible.

2. Rental Property Expenses

Immediate Deductions

Property Management

• Agent fees and commissions
• Advertising for tenants
• Lease preparation costs
• Property inspection reports

Maintenance & Repairs

• Plumbing and electrical repairs
• Painting and cleaning
• Pest control
• Garden maintenance

3. Depreciation (Non-Cash Deduction)

Depreciation can provide thousands in deductions without spending a cent.

Two Types of Depreciation

Capital Works (Division 43)

• Building structure: 2.5% per year (built after 1985)
• Renovations and improvements: 2.5% per year
• Can claim for up to 40 years

Plant & Equipment (Division 40)

• Appliances: dishwashers, ovens, air conditioners
• Furniture: if you provide it
• Carpets, blinds, and curtains
• Hot water systems

Pro Tip: Get a Depreciation Schedule

A quantity surveyor's report costs $500-700 but typically finds $5,000-15,000 in annual deductions. The report itself is tax deductible!

4. Council Rates and Taxes

Claimable Government Charges

✓ Council rates
✓ Water rates (not usage if tenant pays)
✓ Land tax
✓ Strata levies (both admin and sinking fund)
✓ Emergency services levy

5. Insurance Premiums

All insurance related to your investment property is deductible:

Building insurance
Landlord insurance
Contents insurance (for items you provide)
Public liability insurance
Loss of rent insurance

6. Professional Services

Deductible Professional Fees

• Accountant fees for tax returns
• Bookkeeping services
• Legal fees for lease disputes
• Quantity surveyor reports

• Property valuation fees
• Real estate agent fees
• Tribunal hearing costs
• Debt collection fees

Understanding Negative Gearing

Negative gearing occurs when your rental income is less than your property expenses, creating a tax loss you can offset against other income.

Negative Gearing Example

Rental income	$30,000
Total expenses	-$45,000
Tax loss	-$15,000
Tax saving (37% bracket)	$5,550

Travel and Car Expenses

2025 ATO Rules

Travel expense claims have strict rules:

Local travel: Claimable for property inspections, maintenance, collecting rent
Overnight travel: Only if you have multiple properties or it's for major repairs
Car expenses: Keep a logbook or use cents per km method (78c for 2024-25)

Note: No deduction for travel to inspect a property you're thinking of buying

Repairs vs Improvements

Understanding the difference is crucial for tax timing:

Repairs (Immediate Deduction)

• Fixing broken windows
• Replacing damaged carpet
• Repainting faded walls
• Fixing leaking taps
• Restoring to original condition

Improvements (Capital/Depreciation)

• Adding a deck or pergola
• Kitchen renovation
• Installing air conditioning
• Adding security systems
• Improving beyond original state

Pre-Purchase and Initial Repairs

Critical Timing Issue

Repairs for damage that existed when you bought the property are considered capital improvements, not deductible repairs. Document the property's condition at purchase to prove later damage occurred during your ownership.

Record Keeping Requirements

The ATO requires you to keep records for 5 years. Essential records include:

Must-Keep Documents

✓ Rental income statements and bank records
✓ Receipts for all expenses
✓ Loan statements showing interest charged
✓ Depreciation schedules
✓ Property management reports
✓ Insurance policies and premiums
✓ Council and water rate notices
✓ Repair and maintenance invoices

Common Mistakes to Avoid

ATO Red Flags

Claiming expenses for periods the property wasn't available for rent
Claiming the full year when you lived there part-time
Not apportioning expenses for partial rental (e.g., Airbnb)
Claiming capital improvements as repairs
Forgetting to reduce claims when refinancing for personal use
Claiming travel to inspect properties before purchase

Maximising Your Deductions: Pro Strategies

Prepay expenses: Pay next year's insurance or interest in June to bring deductions forward
Time repairs: Do repairs in June rather than July for earlier deductions
Keep properties separate: Don't mix investment and personal use
Use property managers: Their fees are deductible and they provide excellent records
Review annually: Tax laws change - stay updated on new deductions
Consider PAYG variation: Get tax benefits throughout the year, not just at tax time

New for 2025: Recent ATO Changes

Latest Updates

• Increased scrutiny on holiday home deductions
• New reporting requirements for short-term rentals (Airbnb)
• Changes to depreciation for second-hand properties
• Updated cents per kilometre rate: 78c (2024-25)
• Digital record keeping now preferred

Sample Annual Deduction Breakdown

Typical $600,000 Investment Property

Expense Category	Annual Amount
Loan interest (4.5%)	$27,000
Property management (7%)	$2,100
Council rates	$2,400
Insurance	$1,800
Repairs & maintenance	$2,500
Depreciation	$8,000
Other expenses	$1,200
Total Deductions	$45,000

The Bottom Line

Investment property tax deductions can significantly improve your cash flow and overall returns. The key is understanding what you can claim, keeping excellent records, and staying compliant with ATO requirements.

Remember: every dollar of deductions saves you your marginal tax rate. For someone on the 37% tax bracket, $45,000 in deductions means $16,650 back in your pocket. Don't leave money on the table – claim every legitimate deduction available.

Final Tip

Consider engaging a property-savvy accountant. Their fees are tax deductible, and they'll likely find deductions that more than cover their cost. Plus, they'll ensure you stay compliant with the ever-changing tax laws.

Investment Property Tax Deductions: Maximise Your Returns in 2025

Potential Tax Savings Example