Last reviewed September 2026 by Megan Birot, Content Editor, OurTop10. Figures checked against the sources named in the article.An investment property is taxed three ways: on the rent each year, on the land each year in most states, and on the growth when you sell. This guide lists every deduction you can claim and the ones you cannot, explains how depreciation works on new and old property, sets out how capital gains tax is calculated under both the old rules and the May 2026 budget changes, and covers land tax and record-keeping. The calculator further down estimates the tax on a sale under either set of rules.
The three taxes that touch an investment property
Every rental property in Australia is taxed at three points. Each year, the rent is income and the costs of earning it are deductions, and the difference is added to or taken off your taxable income. Each year, most states charge land tax on the land under it, above a threshold. And when you sell, the growth is a capital gain, taxed in the year of the contract. Most of the money investors leave on the table is in the first category, through deductions never claimed, and most of the nasty surprises are in the third.
What you can claim each year
The rule is that an expense is deductible if it was incurred in earning the rent. The Tax Office’s list is long, and a property that is genuinely available for rent all year can claim all of it.
- Interest on the loan, including on a loan used for repairs or to buy depreciating assets for the property. Not the principal.
- Council rates, water rates, land tax and emergency services levies.
- Landlord insurance and building insurance.
- Property manager fees and commission, letting fees, advertising for tenants, tenant database checks.
- Body corporate or strata fees for the administration and sinking funds. Special levies for capital works are not immediate; they go into the capital works deduction below.
- Repairs and maintenance that restore something to its previous condition: fixing a fence, replacing a broken hot water system with the same kind, repainting. Replacing the whole kitchen is an improvement and is depreciated instead.
- Gardening, lawn mowing, cleaning, pest control, smoke alarm servicing, pool servicing.
- Legal costs for evicting a tenant or recovering rent. Not the legal costs of buying or selling, which go into the capital gains calculation.
- Accountant’s fees for preparing the rental schedule, and the cost of a depreciation report.
- Borrowing costs of more than $100: loan establishment fees, lenders mortgage insurance, mortgage registration, valuation fees paid to the lender. These are spread over five years or the life of the loan, whichever is shorter.
- Depreciation and capital works, which are the two items that need a closer look.
Depreciation: the deduction without a bill
A building and the things inside it lose value on paper every year, and the Tax Office lets you claim that decline even though no money left your account. There are two parts.
Capital works
The structure of the building, plus fixed improvements such as a new kitchen, bathroom, roof, fence or driveway, is written off at 2.5% a year over 40 years from the date construction finished. A house built in 2010 for $300,000 of construction cost gives a $7,500 deduction every year until 2050, whoever owns it. Residential property built before 16 September 1987 has no capital works claim on the original building, but every renovation done since is claimable by whoever owns the property when they do their return.
Plant and equipment
Carpets, blinds, ovens, dishwashers, air conditioners, hot water systems and similar items are depreciated over their own effective lives, usually five to fifteen years. Since 9 May 2017 there is a catch: on an established residential property, you can only claim plant and equipment you bought and installed yourself. The oven that came with the house is not yours to depreciate. On a brand-new property, or one you buy from a developer before anyone has lived in it, every item is claimable.
The way to get the number is a depreciation schedule from a quantity surveyor, which costs $500 to $800, is itself deductible, and lasts the life of the property. On a new apartment the combined claim is often $10,000 to $15,000 in the first year. On a 1990s house it might be $3,000 to $5,000. On a 1970s house with the original kitchen, close to nothing. That difference is why negative gearing works harder on newer property, and why the May 2026 budget’s carve-out for new builds matters more than it first appears.
What you cannot claim
- Stamp duty, conveyancing and other costs of buying. They go into the cost base and reduce your capital gain when you sell. The one exception is the ACT, where stamp duty on a leasehold is deductible.
- Travel to inspect the property or collect rent, since 1 July 2017.
- Initial repairs: fixing problems that existed when you bought it, even if you did not know about them. These are capital and go into the cost base.
- Second-hand plant and equipment that came with an established property, as above.
- Holding costs on vacant land, since 1 July 2019, unless the land is being used in a business.
- Any period the property was used privately, kept empty for your own convenience, or rented to family below market rent. Deductions are apportioned to the days it was genuinely available.
- Principal repayments, and interest on any part of the loan you redrew for a private purpose, such as a car or a holiday.
Capital gains tax when you sell
The gain is the sale price less the cost base. The cost base is what you paid plus everything you spent buying it, holding it that you could not deduct, improving it, and selling it: stamp duty, both sets of legal fees, the buyer’s agent, the selling agent, marketing, and every capital improvement. If you claimed capital works deductions along the way, they come off the cost base, because you have already had the benefit.
The tax then depends on when you bought and, from July 2027, what you bought.
Properties owned before 7:30pm on 12 May 2026, and new builds
The gain built up to 30 June 2027 gets the 50% discount if you have owned the property for more than twelve months, and the discounted gain is added to your income and taxed at your marginal rate. A $200,000 gain becomes $100,000 of taxable income; for someone on $110,000 that is about $39,000 of tax including the Medicare levy. Gains after 30 June 2027 on properties held at the budget are taxed under the new method below; new builds keep the discount permanently.
Established properties bought after 12 May 2026, gains after 1 July 2027
The 50% discount is replaced with indexation: your cost base is increased in line with inflation, and only the growth above inflation is taxed. But the whole of that real gain is taxed as income, with a minimum rate of 30%, so a low earner does not get the benefit of the lower brackets. For a property that grows at 6% a year with inflation at 3%, roughly half the gain is taxed under either method, and the difference comes down to your marginal rate: above 30% the old discount was better, below it the new method can be. For a property that grows faster than inflation by a wide margin, indexation is worse.
Capital gains tax estimator: old rules and post-budget rules side by side
Enter the purchase, the sale and your income. The estimator works out the cost base, then shows the tax under the 50% discount method and under the indexation method that applies to established properties bought after 12 May 2026 for gains after 1 July 2027.
Built by OurTop10. Results are estimates for comparison only and are not credit advice. Figures stay in your browser and are not sent anywhere.
Timing, losses and the main residence
- The gain is taxed in the financial year the contract is signed, not when settlement happens. A contract dated 28 June and settled 15 August lands in the earlier year.
- A capital loss can only be offset against capital gains, this year or in the future. It cannot reduce your salary.
- If you lived in the property before renting it, the six-year absence rule can keep it exempt for up to six years of renting, as long as you do not claim another home as your main residence at the same time. If you move into a rental you bought as an investment, the exemption only covers the years you lived there, apportioned by days.
- Selling in a year when your income is lower, such as the first year of retirement or a year of parental leave, reduces the tax on the gain under the old method. Under the new method the 30% floor limits how much that helps.
Land tax
Every state except the Northern Territory charges land tax on investment property, on the unimproved value of the land, above a threshold, and it is deductible. The thresholds are where the states differ wildly. New South Wales does not charge until your total taxable land value passes about $1.075 million, so a single Sydney unit often escapes it while a single Sydney house does not. Victoria’s threshold dropped to $50,000 in 2024, which means almost every Victorian investment property pays something, and Queensland’s is $600,000 for individuals. The tax is assessed on everything you own in that state combined, which is why a third or fourth property in the same state costs more to hold than the first, and why some investors spread across states.
Keeping the records
The Tax Office requires records for five years after the return is lodged, and for capital gains purposes that means from the year you sell, so in practice you keep purchase records for as long as you own the property plus five years. The list is the purchase contract and settlement statement, every loan statement, the depreciation schedule, invoices for every repair and improvement, the agent’s annual statement, rates and insurance notices, and the sale contract and agent’s statement at the end. An investor who cannot show what an improvement cost cannot add it to the cost base, and the difference is taxed.
The investment property guide covers the purchase decision, the rental yield guide covers the numbers before tax, and the capital gains tax calculator works a full sale scenario. None of this is a substitute for a registered tax agent who does rental schedules every week, and the fee is deductible.
Frequently asked questions about investment property tax
What can I claim on an investment property?
Loan interest, rates, land tax, insurance, agent fees, strata fees, repairs and maintenance, gardening and cleaning, legal costs for tenant matters, accountant fees, borrowing costs spread over five years, and depreciation on the building and its fittings. Purchase costs and initial repairs are not deductible; they reduce your capital gain instead.
Can I claim depreciation on an old property?
Partly. Capital works on the building are claimable at 2.5% a year if it was built after 15 September 1987, and any renovations since are claimable regardless of age. Plant and equipment that came with an established property bought after 9 May 2017 cannot be depreciated; only items you install yourself can.
How is capital gains tax calculated on an investment property?
Sale price less the cost base, which is the purchase price plus buying costs, improvements and selling costs, less capital works already claimed. For properties owned before 12 May 2026 or bought as new builds, half the gain is added to your income if held over twelve months. For established properties bought after that date, gains after 1 July 2027 are indexed for inflation and taxed at a minimum of 30%.
Is stamp duty tax deductible on an investment property?
No, except in the ACT. It is added to the cost base and reduces the capital gain when you sell.
Do I pay land tax on an investment property?
In every state except the Northern Territory, once the total land value you own in that state passes the threshold: about $1.075 million in NSW, $50,000 in Victoria, $600,000 in Queensland. It is deductible.
When is capital gains tax paid?
In your tax return for the financial year in which the sale contract was signed, not the settlement date. There is no separate payment at settlement.
MANSOUR SOLTANI
Mansour has spent more than two decades involved in the purchase and sale of real estate, acquiring both investment and commercial properties throughout Australia, including in major cities and smaller regional locations.
He is the proprietor of a finance brokerage firm, overseeing a portfolio worth in excess of 200 million in loans and serving a diverse clientele across Australia and a regular contributor to money.com.au. This has equipped him with extensive knowledge in various investment tactics, allowing him to offer significant insight.