The 2025-26 financial year is done. Now comes the part that sets your tax bill: lodging your investment property return and claiming every deduction you’re entitled to. Get it right and you keep thousands. Rush it and you either leave money behind or invite ATO attention.
This year has added complexity. The RBA has delivered back-to-back rate hikes, lifting the cash rate to 4.35% in May and pushing holding costs higher. The federal budget on 12 May confirmed major changes to negative gearing and the CGT discount, though neither starts until 1 July 2027. And the ATO has significantly expanded its data matching program for rental properties.
Here’s what you need to know.
The deductions you should be claiming
If you’re not claiming all of these, you’re leaving money on the table.
Interest on your investment loan
This is typically your largest deduction. You can claim interest on any loan used to purchase, renovate, or maintain an investment property. With average variable rates now above 6% for most investors, the interest component of your repayments is substantial.
Important: Only the interest portion relating to the investment property is deductible. If you’ve drawn down on your loan for personal purposes (a holiday, a car, renovations on your own home), you must apportion the interest between investment and personal use. The ATO has flagged this as a specific focus area for 2025-26.
Depreciation
There are two types:
Division 40 (plant and equipment). Items like carpets, blinds, hot water systems, air conditioners, ovens, and dishwashers. These are depreciated over their effective life. Carpet depreciates over about 8 years, a split-system air conditioner over 10.
Division 43 (capital works). The building structure itself. If your property was built after 15 September 1987, you can claim 2.5% of the original construction cost per year for 40 years. On a property with $300,000 in construction costs, that’s $7,500 per year - a significant deduction many investors miss.
The 2017 change: If you purchased a second-hand property after 9 May 2017, you can no longer claim depreciation on existing plant and equipment assets (Division 40). You can only claim on new items you install yourself. Division 43 (capital works) deductions still apply regardless of when you bought.
If you don’t have a depreciation schedule, get one. A quantity surveyor inspection typically costs $600-$800 and often identifies $5,000-$20,000+ in deductions in the first year alone. It’s one of the highest-return investments you can make.
Repairs and maintenance
You can claim an immediate deduction for repairs that restore something to its original condition. Fixing a leaking tap, patching a hole in the wall, replacing broken blinds - these are all immediately deductible.
The trap: If you’re improving the property rather than repairing it, the cost becomes a capital improvement and must be depreciated over time (Division 43). Replacing damaged carpet with the same type of carpet? That’s a repair. Ripping out carpet and installing timber floors? That’s an improvement. The ATO is specifically targeting investors who claim improvements as repairs.
Property management fees
If you use a property manager, their fees (typically 5-10% of rental income) are fully deductible. This includes management fees, letting fees for finding new tenants, and advertising costs for tenant searches.
Insurance
Landlord insurance, building insurance, and any landlord-specific policies are deductible. Public liability insurance on the property is also claimable.
Council rates, water rates, and body corporate
All deductible. Keep your receipts or statements.
Travel to your property
Important: travel to inspect a rental property is no longer deductible for individual investors. This changed on 1 July 2017. You cannot claim flights, accommodation, car expenses, or meals for property inspections. The only exception is if you’re in the business of property investing (not just an individual investor). This is one of the most commonly overclaimed deductions, and the ATO actively watches for it.
For interstate investment properties, your property manager handles inspections on your behalf, and their fees are deductible.
Stationery and admin costs
Phone calls to your property manager, stationery, computer costs (apportioned for property use), and accounting fees for preparing your rental property tax return are all deductible.
What the ATO is targeting this year
The ATO has made rental property deductions a primary focus area for 2025-26. Here’s what they’re watching:
Expanded data matching
The ATO is acquiring detailed property management records from property management software companies, covering around 2.3 million landlords a year across the financial years from 2018-19 to 2025-26. The data includes property owner identification, transaction details, account balances, income, and expenses for both residential and commercial properties.
In plain English: the ATO can now cross-reference what your property manager reports with what you declare on your tax return. If you’re under-reporting rental income or over-claiming deductions, they’ll see it.
Specific focus areas
Repairs versus capital improvements. ATO Assistant Commissioner Rob Thomson has explicitly called this out. Replacing damaged carpet is a repair (immediately deductible). Installing a new kitchen is a capital improvement (depreciated over time). The line between “repair” and “improvement” is where many investors get caught.
Loan interest apportionment. If you’ve refinanced or accessed equity for personal use, you need to separate the investment portion from the personal portion. The ATO has flagged that “people aren’t apportioning correctly between interest relating to private use and the interest that relates to the income they’re generating.”
Holiday homes and short-term rentals. The ATO released a new draft ruling (TR 2025/D1) that significantly tightens the rules for mixed-use and holiday rental properties. If your property is mainly for personal recreation, ownership costs like interest, rates, insurance, and maintenance are no longer deductible - only cleaning, advertising, and platform fees remain claimable. The ATO now cross-references your Airbnb calendar availability and personal travel history against your tax return. Listing a property at an unrealistically high price during peak season doesn’t count as “genuinely available.”
The ATO has said it won’t devote compliance resources to expenses incurred before 1 July 2026, provided the arrangement was entered into before 12 November 2025. From 1 July 2026, the scrutiny is real.
Rental income gaps. The ATO is matching tenancy bond data (2.2 million records from state bond authorities) against declared income. If your property was tenanted for 50 weeks but you only declared 45 weeks of rental income, that gap will be flagged automatically.
What to sort before you lodge
Get a depreciation schedule
This is the one big deduction you can still put in place after year-end. If you don’t have a schedule, get one now. A quantity surveyor prepares a report that applies to your 2025-26 return, and if you’ve owned the property for years without one, your accountant can amend prior returns to claim what you missed. It typically costs $600-$800, and the fee itself is deductible.
See what your deductions are worth on your 2025-26 return.
Use the calculator →
Reconcile your records before you lodge
Make sure every dollar of rental income is accounted for and matched to your receipts. With the ATO’s expanded data matching, any gap between what your property manager paid you and what you declare will be flagged. Check your property manager statements against your own records now, not in October when the ATO sends a letter.
Split repairs from improvements
Go through the work you did during the year and sort it correctly. Repairs that restore something to its original condition (a new coat of paint, a fixed fence, a replaced hot water system) are immediately deductible. Improvements are not, they get depreciated over time. This is where a lot of investors trip up, and it’s the first thing the ATO checks.
Plan next year’s timing now
Two levers you’ve missed for 2025-26 but can still use before 30 June 2027. First, prepay up to 12 months of interest, insurance, body corporate, or management fees before year-end to bring the deduction forward (the service period has to end within 12 months). Second, time any planned repairs to land before 30 June rather than just after. Both shift deductions into the earlier year. Worth a conversation with your lender and accountant well before next EOFY.
How the Stage 3 tax cuts affect your deductions
The Stage 3 tax cuts took effect on 1 July 2024, changing the income tax brackets. This is the second full financial year under the new rates. Here’s what the brackets look like:
| Taxable income | Tax rate |
|---|---|
| $0 - $18,200 | 0% |
| $18,201 - $45,000 | 16% |
| $45,001 - $135,000 | 30% |
| $135,001 - $190,000 | 37% |
| $190,001+ | 45% |
For property investors, the key impact is on the value of your negative gearing deductions. A dollar of rental loss reduces your taxable income, so it saves you tax at your marginal rate. If you earn between $45,001 and $135,000, that rate is now 30%, so a dollar of deduction saves you 30 cents. Above $135,000 it saves 37 cents, and above $190,000, 45 cents.
The Stage 3 changes lowered most of these rates. Income between $45,001 and $120,000 was previously taxed at 32.5% and is now 30%. The old 37% rate started at $120,001, where the 30% rate now runs all the way to $135,000. So for many investors a dollar of deduction saves less tax than it did two years ago, simply because marginal rates came down.
This doesn’t change what you can claim - it changes what each claim is worth.
The budget changes and your 2025-26 return
The 12 May 2026 federal budget confirmed two major reforms, both starting 1 July 2027:
- Negative gearing on established homes. Investors who buy an established residential property after 7:30pm on 12 May 2026 will no longer be able to offset rental losses against their salary. Losses can only be offset against rental income or future capital gains, with any excess carried forward.
- The CGT discount. The 50% discount is being replaced with cost base indexation and a 30% minimum tax rate on capital gains.
Two things matter for your 2025-26 return. First, if you owned the property, or were under contract, before 7:30pm on 12 May 2026, you are grandfathered and keep the current rules until you sell. Eligible new builds also stay exempt and keep both negative gearing and the 50% CGT discount. Second, none of this touches your 2025-26 return. This year is assessed under the rules as they stand today.
So for your 2025-26 return, focus on maximising your deductions under the current rules. The changes are not retrospective.
If you’re thinking about selling a property and want to use the current 50% CGT discount, the relevant date is typically the contract date, not the settlement date. Talk to your accountant about timing if this applies to you. Our capital gains tax calculator can give you a quick estimate under current rules.
Your lodgment checklist
Before you lodge your 2025-26 return, make sure you’ve:
- Collected all rental income statements from your property manager
- Gathered all expense receipts (interest, insurance, rates, repairs, management fees)
- Obtained or updated your depreciation schedule
- Separated repairs (immediate) from improvements (depreciated)
- Claimed any expenses you prepaid before 30 June
- Reviewed your loan structure for correct interest apportionment
- Checked for any personal use periods (holiday homes / Airbnb)
- Booked time with your accountant
Don’t leave deductions on the table
The difference between a well-prepared tax return and a rushed one can be thousands of dollars. Depreciation alone can be worth $5,000-$15,000 per year on a typical investment property, and it costs nothing to hold the asset - it’s a paper deduction.
If you’re building a property portfolio, getting your tax position right from the start compounds over time. An extra $10,000 in deductions per year across a 10-year hold is $100,000 in reduced taxable income. That’s real money.
For a full comparison of annual land tax across every state, see our land tax by state guide. For upfront stamp duty costs, see our stamp duty by state comparison.
This is general information only and not tax advice. Tax rules are complex and depend on your individual circumstances. Always consult a qualified tax professional for advice specific to your situation.
Want to discuss how to structure your investment property for maximum tax efficiency? Book a free discovery call.
