Property investment tax deductions that most investors miss are not obscure or aggressive: they are legitimate, ATO-confirmed deductible items that investors fail to claim because they don’t know about them, don’t have adequate records, or assume they are not deductible. This guide covers the most commonly missed deductions and how to claim each correctly.
1. Depreciation: The Biggest Missed Deduction
Depreciation is the most commonly missed — and most valuable — investment property deduction. Many investors who bought established properties never commission a quantity surveyor (QS) depreciation schedule, assuming their property is “too old” to have significant depreciation. This is often incorrect.
Division 43 (capital works) applies to buildings constructed after 15 September 1987: 2.5% of construction cost per year for 40 years. A property built in 1990 still has remaining Division 43 years. A 2005-built property has 19 years remaining. Division 40 (plant and equipment): the 2017 budget changes mean second-hand residential properties can no longer claim Div 40 on pre-existing plant and equipment, but any new item you personally install after purchase (new hot water system, new air conditioning, new carpet) can be claimed over its effective life — keep all invoices. Commission a QS depreciation schedule ($600-$900, tax deductible) for any property built after September 1987 where you haven’t already.
Commonly Missed Deductions — Annual Value Examples
Note: Travel to inspect an investment property was abolished as a deduction from 1 July 2017. Do NOT claim this. All other items above remain legitimate if properly documented. Always discuss with your accountant to confirm what applies to your specific property and circumstances.
2. Borrowing Costs
The costs of establishing your investment loan — bank loan fees, mortgage registration fee, lender’s legal fees, and LMI (if applicable) — are deductible over the lesser of 5 years or the loan term. Many investors either miss this entirely or incorrectly try to claim it all in year 1. LMI premiums are deductible over 5 years from the year the loan is taken out — a $15,000-$20,000 LMI premium is deductible at $3,000-$4,000/year over 5 years.
3. Land Tax
Land tax paid on an investment property is fully deductible against rental income in the year it is paid. In Victoria, NSW, and other higher-land-tax states, this can be $2,000-$8,000+ per year. Check your state revenue office notices each financial year and include the amount in your tax return. Many investors pay the notice without adding it to their deduction list.
4. Tax Agent and Accountant Fees
The fee you pay your accountant for preparing the rental schedule and investment property section of your tax return is deductible in the year the fee is paid. This includes fees for advice on your investment property tax position. The investment-property-related portion is usually the majority of the fee for an investor with multiple properties.
5. Repairs vs Capital Improvements: Getting This Right
Capital improvements (installing a new deck, renovating the kitchen to a better standard, adding a room) are not immediately deductible: they are Division 43 capital works at 2.5%/year. Incorrectly claiming a capital improvement as a repair is an ATO audit risk. Correctly classifying genuine repairs as repairs (replacing broken items with equivalent replacements) preserves your immediate deduction. Discuss borderline cases with your accountant.
Frequently Asked Questions
Depreciation is the biggest opportunity — if you have not commissioned a QS schedule for a post-1987 property, do it before this tax year ends. The fee ($600-$900) is deductible and the first-year return typically exceeds the cost by 3-10 times. Land tax, borrowing costs, and accountant fees are the next most commonly missed. Run your deduction list against this article every year at tax time and confirm with your accountant that every legitimate deduction is being claimed.
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General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
