Investment Property Tax Deductions for Smart Savings

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If you’re looking to unlock the full potential of your rental property, you’ve come to the right place. Introducing our Rental Property Deductions Checklist. Whether you own Residential Houses, Units/Apartments, or Commercial Properties, this checklist is your key to optimising your financial gains.

What Rental Property Deductions Can you Claim?

Investing in real estate offers not only rental income but also valuable opportunities for tax deductions. Understanding these deductions can significantly impact your returns by reducing taxable income. In this comprehensive guide, we’ll explore crucial tax deduction categories that property investors should be aware of, aligning with terms relevant to investment property tax deductions.

Deductions You Can Claim Now

Investment property tax deductions, including tax deductible expenses such as interest on loans (interest repayments and interest charged), council rates, and immediate deductions for maintenance expenses, are among the rental property deductions you can claim. These tax deductions, listed in the Australian taxation office guidelines, pertain to property investors seeking to maximize their tax benefits. Property owners can claim immediate tax deductions for various expenses associated with managing and maintaining rental properties.
This category covers expenses such as :
  • Advertising for tenants
  • Body corporate fees
  • Cleaning
  • Gardening
  • Pest control
  • Security patrol fees
Additionally, deductible expenses include :
  • Water rates, council rates, and first-time owners’ land tax
  • Property agent fees
  • Administration expenses linked to property management (e.g., stationery, communication costs)
  • Property insurance costs (landlords, building, contents, public liability insurance)
Initial repairs on damage existing when you bought the property and improvements made to the property are not immediately deductible. These costs can be claimed over several years as a capital works deduction or used to work out your capital gain or capital loss when you sell the property. The interest on home loans used for property acquisition holds significant deduction value. Quantity surveyor fees and costs related to attending property investment seminars specifically relevant to owned properties are also claimable in this category.

Deductions You Can Claim Over Several Years

Certain expenses such as capital works deductions, plant and equipment assets, and borrowing costs, can be claimed over multiple years, ensuring that investment property tax deductions are optimized to generate income. These deductions are essential for minimizing taxable income and managing your property investment effectively. Remember, the provided references indicate the sections in the Australian taxation office guidelines where the terms are found. Always consult with a tax professional to ensure that you’re making the most of the available investment property tax deductions within the legal framework.

What you can’t claim on an investment property?

When managing your investment property, it’s important to understand the rental expenses that you cannot claim as tax deductions. These include :

Borrowing Expenses You Can’t Claim

Borrowing expenses are costs associated with taking out a loan for purchasing your rental property. However, there are specific borrowing expenses that you cannot claim as deductions. These include :

The Amount Borrowed

You cannot claim the actual amount you borrowed for the property.

Loan Balances

Any loan balances related to the property are not tax deductible.

Interest Expenses

Interest on loans for rental properties can be claimed as a tax deduction. However, if the loan is bundled with personal items like a car or holiday, the interest must be apportioned for the cost of those items over the life of the loan.

Principal Repayments

Any loan balances related to the property are not tax deductible.

Stamp Duty

Stamp duty charged by your state or territory government during the property title transfer is considered a capital expense and cannot be claimed.

Legal Expenses

Fees paid to solicitors and conveyancers for property purchase are capital expenses and not deductible.

Leasehold Interest Stamp Duty

Stamp duty for acquiring a leasehold interest, such as a 99-year crown lease, may not be deductible unless claimed as a lease document expense.

Insurance Premiums

Insurance premiums covering loan payout due to death, disability, or unemployment are private expenses and cannot be claimed.

Private Use Portion

Borrowing expenses allocated to private purposes, like purchasing a car, are not deductible.

Second-hand Depreciating Assets You Can’t Claim

When it comes to second-hand depreciating assets in your rental property, there are limitations to what you can claim :

The Amount Borrowed

  • Existing Residential Property: If you purchased an existing residential rental property on or after 7:30 pm (AEST) on 9 May 2017, you cannot claim a deduction for the decline in value of assets that were already present in the property.
  • Converted Private Residences: If you turn your private residence into a residential rental property on or after 1 July 2017, you can only claim a deduction for the decline in value of new depreciating assets purchased for the rental property.
The limitations on claiming deductions for the decline in value of second-hand depreciating assets apply to residential rental properties, not all rental properties.

Other Expenses You Can’t Claim

Certain expenses are not eligible for deduction when calculating your rental property expenses :

Tenant Paid Charges

Expenses not directly paid by you, such as water or electricity charges paid by tenants, are not deductible.

Acquisition and Disposal Costs

This includes costs like purchase expenses, conveyancing fees, and advertising costs. These are typically factored into the property’s cost base and impact capital gains tax upon property sale.

GST Credits

While GST doesn’t apply to residential rental properties, when claiming an expense as a deduction, you include the total amount paid, including GST (if applicable). Understanding these limitations on deductible rental expenses is essential for accurate financial planning and reporting. It’s recommended to consult with a tax professional to ensure compliance with current regulations and optimize your rental property finances.

Why professional advice can help to save money

Investing in property can be a lucrative endeavor, but it comes with its fair share of complexities, particularly when it comes to maximizing tax deductions. The intricacies of tax laws, evolving regulations, and the nuances of deductions can quickly become overwhelming for property investors. This is where professional advice, like the expertise offered by TMS Financials, can play a pivotal role in helping you save money and navigate the world of investment property tax deductions effectively.

Comprehensive Understanding of Deduction Categories

As outlined in our comprehensive guide above, investment property tax deductions encompass various categories, including interest on loans, maintenance and repairs, improvements, and other expenses. A knowledgeable tax professional from TMS Financials, equipped with a comprehensive knowledge of these terms, can help you understand these categories in detail, ensuring that you don’t miss out on potential deductions that can significantly reduce your taxable income.

Adherence to Evolving Tax Laws and Regulations

Tax laws are subject to change, and keeping up with the latest updates can be a challenge for property investors. A reputable tax advisor from TMS Financials, with a keen awareness of terms like “capital gains tax,” “land tax,” and “income tax,” stays up-to-date with the ever-changing tax landscape. This ensures that your deductions are in line with the most current regulations, which is particularly vital when dealing with terms like “immediately tax deductible” and “immediate deduction.” This proactive approach helps you avoid costly mistakes and potential penalties resulting from outdated information.

Accurate Determination of Deductible Expenses

The line between deductible repairs and improvements can sometimes be blurred, leading to incorrect claims and potential audits. TMS Financials’ experienced advisors possess the expertise to accurately distinguish between the two, safeguarding you from accidental errors that could trigger unwanted attention from tax authorities. Terms such as “capital nature” and “capital works deductions” are intricately understood to ensure proper categorization.

Maximizing Depreciation Benefits

Depreciation is a key element in property investment tax deductions, especially concerning improvements and assets within the property. TMS Financials’ professionals can guide you through the intricacies of depreciation schedules, ensuring that you claim the maximum allowable depreciation benefits over time, ultimately bolstering your savings. Terms like “depreciation deductions” and “tax depreciation schedule” are central to this expertise.

Tailored Advice to Your Unique Situation

Each property investment is unique, and so are the associated tax implications. TMS Financials takes a personalized approach, analyzing your specific circumstances to provide tailored advice that aligns with your investment goals. This personalized guidance ensures that you’re not leaving any money on the table and are making the most of available deductions. Terms like “tax advisor” and “deductible expenses” are at the core of this tailored approach. In conclusion, TMS Financials can be instrumental in optimizing your investment property tax deductions. By leveraging their knowledge of deduction categories, adherence to changing tax laws, and accurate determination of expenses, you’re poised to save money and navigate the complexities of property investment taxes with confidence. To maximize your investment returns while ensuring compliance with tax regulations, consider partnering with TMS Financials for expert guidance and peace of mind.

Who are TMS Financials

TMS Financials provides you with a team of experienced professionals that help you achieve your financial goals through smart tax structures and financial planning. We’re a one-stop shop for all financial needs and pride ourselves on building strong partnerships with our clients.

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The information provided in the previous responses is for general informational purposes only and should not be considered as professional financial or tax advice. While efforts have been made to ensure accuracy, it’s important to note that tax laws, regulations, and deductions can vary based on individual circumstances and jurisdiction. In no event shall the author, TMS Financials, or any other entity mentioned in this article be liable for any direct, indirect, special, or consequential damages arising out of the use or reliance on the information provided. Every individual’s financial situation is unique, and professional advice tailored to your specific circumstances is essential for making informed financial decisions.

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