Most rental property mistakes are not about claiming something that is never deductible. They are about claiming the right expense in the wrong year. A new kitchen claimed as a repair, loan fees claimed in one hit, or stamp duty slipped into the expense column will all be picked up if the ATO looks closely.
This guide sorts rental expenses into the three timing buckets the ATO uses: claim now, claim over several years, and not deductible at all. It applies to 2025-26 returns being lodged now and to the 2026-27 income year, and the rules were checked against the ATO’s Rental properties guide 2026 and its residential rental properties pages.
It is written for landlords who already know what they spent and want to put each cost in the right place. For the full list of individual deductions, holiday homes and vacant land, see our main guide to rental property deductions you can claim.
Key takeaways
- Rental expenses fall into three timing buckets: immediate, spread over several years, or not deductible.
- Borrowing expenses over $100 are spread over 5 years or the loan term, whichever is shorter.
- Capital works such as a new kitchen or deck are generally claimed at 2.5% a year over 40 years once complete.
- Repairs for damage that existed when you bought the property are capital, even if you did not know about them.
- Transfer stamp duty and conveyancing fees are not deductible; they go into the CGT cost base.
- The ATO said in 2024 that 9 out of 10 rental property owners were getting their returns wrong.
Rental expense timing at a glance
| Bucket | When you claim it | Typical examples |
|---|---|---|
| Claim now | In the income year incurred | Interest, council rates, water, land tax, insurance, agent fees, cleaning, gardening, pest control, repairs and maintenance |
| Borrowing expenses | Over 5 years or the loan term if over $100 | Loan establishment fees, lender-billed mortgage insurance, valuation for the loan, mortgage stamp duty, broker fees |
| Capital works | Usually 2.5% a year over 40 years once complete | Building structure, extensions, renovations, fences, driveways, initial repairs to the building |
| Depreciating assets | Over effective life (limits apply to second-hand assets) | New carpets, curtains, appliances, air conditioners |
| Not deductible against rent | Added to CGT cost base or private | Transfer stamp duty, purchase legal fees, principal repayments, private share of interest |
Source: ATO common property expenses, borrowing expenses, capital expenses and depreciating assets in rental properties, checked 9 October 2026.
Which rental expenses can you claim straight away?
The ATO’s common property expenses page lists the costs you can claim in the year you incur them:
- Advertising for tenants and property agent fees and commissions.
- Body corporate administration fund fees and charges.
- Council rates, water charges and land tax.
- Cleaning, gardening, lawn mowing and pest control.
- Building, contents, public liability and loss of rent insurance.
- Interest on the loan used for the rental, and repairs and maintenance.
These are only deductible for the period the property is rented or genuinely available for rent. If you use it yourself or rent it to family below market rate, you need to apportion.
Prepaid expenses
Prepaying interest or insurance before 30 June can bring a deduction forward. The ATO says prepaid expenses under $1,000 can generally be claimed immediately, as can amounts of $1,000 or more where the service period is 12 months or less and ends in the next income year. Other prepayments are spread over the shorter of the service period or 10 years.
What counts as a borrowing expense?
Borrowing expenses are the costs of taking out the loan, not the loan itself. The ATO’s borrowing expenses page includes loan establishment fees, lender’s mortgage insurance billed by the lender, lender title search fees, mortgage document costs, broker fees, valuation fees required for loan approval, and stamp duty on the mortgage.
If the total is $100 or less, you claim it all in the year incurred. Otherwise you spread it over 5 years or the loan term, whichever is shorter, counting days from when the loan started. Repay or refinance the loan early and the remaining balance is claimed in that year.
Interest is not a borrowing expense; it is claimed each year as you incur it. Insurance that pays out the loan on death, disability or unemployment is private and not deductible.
Repair, initial repair or improvement?
This is the split the ATO checks most. Its Tax Time 2024 focus areas named repairs and maintenance on rental properties as a common error, and said capital improvements such as replacing a kitchen cannot be claimed as immediate repairs.
| Work done | Treatment | Why |
|---|---|---|
| Replacing a cracked window pane or part of a fence | Repair: claim now | Restores something damaged while rented |
| Repainting faded walls between tenants | Maintenance: claim now (materials only if you do it yourself) | Prevents or fixes deterioration |
| Fixing defects that existed at purchase | Initial repair: capital | ATO treats it as capital even if you were unaware |
| New kitchen, bathroom renovation, extension | Improvement: capital works | Makes the property better or changes its character |
| Replacing an entire item rather than part of it | Generally capital, not a repair | Replacing an entirety is not a repair |
Read more on the ATO’s repairs and maintenance page. Where a job mixes repairs and improvements, only the repair part is deductible, and only if it can be separated, so ask the tradesperson for an itemised invoice.
How do capital works and depreciation fit in?
Capital works cover the building and structural improvements: extensions, alterations, fences, driveways and similar. The ATO’s capital expenses page gives a general rate of 2.5% a year over 40 years, claimed only once construction is complete and while the property is rented or held to produce income. Our capital works deduction guide explains the rates and dates in more detail.
Depreciating assets are plant that is not part of the structure, such as carpets, curtains, appliances and air conditioners. Items costing $300 or less can be claimed in full, and assets under $1,000 can go into a low-value pool. In most cases you cannot claim second-hand depreciating assets in a residential rental acquired after 1 July 2017.
What can you never claim against rent?
- Purchase costs: transfer stamp duty and purchase legal or conveyancing fees. These generally go into the cost base and reduce the gain when you sell. See our CGT on property guide.
- Principal repayments on the loan.
- Private interest: the share of a loan used for a car, holiday or your home.
- Your own labour on repairs (materials are deductible).
- Special levies for a specific capital improvement, which may be capital works once the work is done.
Worked example: sorting a first year of rental expenses
Sam bought a rental property in Melbourne and took out the loan on 1 July 2025. Her 2025-26 costs were:
Claim now: interest $24,000 + agent fees $2,200 + council rates $1,900 + insurance $1,400 + hot water system part repair $650 = $30,150.
Borrowing expenses: establishment fee $600 + lender’s mortgage insurance $1,000 + loan valuation $400 = $2,000. The 5-year period from 1 July 2025 has 1,826 days, so year 1 = $2,000 x 365 / 1,826 = $399.78.
Capital works: new kitchen cupboards and benches finished on 1 July 2025 cost $18,000. $18,000 x 2.5% = $450 for the full year.
Not deductible: transfer stamp duty and conveyancing fees. They go into her cost base.
Total 2025-26 deduction: $30,150 + $399.78 + $450 = $30,999.78. Claiming the kitchen and loan costs in full would have overstated the claim by $20,000 – $849.78 = $19,150.22.
Rule of thumb: If the spending makes the property better than it was when you bought it, or comes from the loan rather than the tenancy, assume it is claimed over time until you have checked the ATO rule.
Common mistakes with rental property tax deductions
- Claiming improvements as repairs. A new kitchen or bathroom is capital works, not a repair.
- Claiming initial repairs. Defects present at purchase are capital, even if you found them later.
- Claiming loan costs in one year. Borrowing expenses over $100 are spread over 5 years or the loan term.
- Deducting stamp duty on purchase. Transfer duty belongs in the cost base, not the rental schedule.
- Not apportioning interest. Redraws used for private spending make part of the interest non-deductible.
FAQ about rental property tax deductions
What rental expenses can I claim straight away?
The ATO lists day-to-day costs such as advertising for tenants, body corporate administration fund fees, council rates, water charges, land tax, cleaning, gardening, pest control, insurance, loan interest, agent fees, repairs and maintenance, and certain legal expenses. They are claimed in the income year you incur them, as long as the property is rented or genuinely available for rent.
How are borrowing expenses claimed on a rental loan?
If your total deductible borrowing expenses are $100 or less, you claim them in full in the year incurred. Otherwise you spread them over 5 years or the term of the loan, whichever is shorter, starting from the day the loan was taken out. If you repay the loan early, the undeducted balance is claimed in the year of repayment.
Is stamp duty on buying a rental property deductible?
No. Stamp duty on the transfer of the property and purchase legal or conveyancing fees are capital costs, so you cannot deduct them against rent. They generally form part of the property’s cost base and reduce your capital gain when you sell. Stamp duty charged on the mortgage itself is different and is claimed as a borrowing expense.
Can I claim a new kitchen as a repair?
No. Replacing a kitchen is an improvement, and the ATO treats improvements as capital. You generally claim the building work as capital works deductions, usually at 2.5% a year over 40 years once the work is complete. New appliances that come with it may be depreciating assets, claimed over their effective life instead.
Can I claim prepaid interest or insurance?
Generally, yes. The ATO says prepaid rental expenses under $1,000 can be claimed immediately, and so can larger amounts where the service period is 12 months or less and ends by the end of the next income year. Other prepayments of $1,000 or more are spread over the shorter of the service period or 10 years.
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Nanak Accountants can sort your rental costs into the right buckets, set up borrowing expense and capital works schedules, and check your claim before you lodge. Our rental property tax return and negative gearing tax return services cover individual landlords, and our tax planning and wealth structuring teams help with ownership decisions. If the ATO is already reviewing a claim, its guide to supporting rental property deductions in an objection shows the evidence it expects. Read more about our team, call 1300 626 258 or contact us. Our negative gearing guide explains how a rental loss offsets other income, and the Nanak Accountants home page lists our offices.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO Rental properties guide 2026 and the ATO pages on residential rental properties, common property expenses, borrowing expenses, capital expenses, repairs and maintenance, depreciating assets and Tax Time 2024 focus areas on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
