What Are the Ongoing Holding Costs of an Investment Property That Are Tax Deductible?
Interest, depreciation, land tax and management fees: how ongoing rental property costs are tax deductible under current ATO rules, as at July 2026.
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What Are the Ongoing Holding Costs of an Investment Property That Are Tax Deductible?
Running a rental property costs money every month, not just at settlement. Some of that ongoing spending can be claimed against your rental income at tax time — some can’t, and some sits in between, deducted gradually over years rather than all at once.
This guide sets out the main categories the Australian Taxation Office (ATO) and other regulators recognise, sourced to their own published pages. It’s general information, not personal tax advice — a registered tax agent can tell you exactly what applies to your situation.
If you’re new to the basics of buying real estate for rental income and growth, our guide to property investment in Australia is a good starting point before you get into the cost detail below.
Which ongoing costs of a rental property are tax deductible?
In broad terms, a cost is a candidate for a deduction if it’s incurred in earning your assessable rental income. Loan interest, the ongoing decline in value of the building and its fittings, and the fees you pay to run the property are the three biggest categories most investors deal with year to year. Each is treated differently:
- Immediate deductions — costs like loan interest and property management fees are generally deducted in full in the year you pay them.
- Deductions spread over time — the building’s structure and, in limited cases, its plant and equipment are deducted gradually through depreciation, not claimed as a lump sum.
- Not always deductible — some second-hand items inside an established property can’t be depreciated by a new owner at all (more on this below).
The sections below work through each category, plus the state-based cost that catches a lot of investors by surprise: land tax.
How does a net rental loss actually get treated right now?
Under the law as it stands today, if your deductible rental expenses (including loan interest) exceed your rental income, you end up with a net rental loss — commonly called negative gearing. The ATO’s own definition: “Negative gearing occurs when you buy a rental property with the assistance of borrowed funds and the rental income is less than the deductible expenses (including interest on the borrowings).”
Under current law, that loss isn’t quarantined to the property. The ATO states you “may be able to claim a deduction for the full amount of rental expenses against your rental and other income (such as salary, wages or business income)” in the same income year, and if your other income isn’t enough to absorb it, you carry the loss forward to the next year. There’s no general dollar cap on this under current law.
This is changing from 1 July 2027. The government has enacted a new rule (Act No. 49 of 2026, assent 26 June 2026) that quarantines residential rental losses from that date — they’ll only be usable against residential capital gains or future residential rental income, not against your salary or other income. Interests acquired before 7:30pm AEST on 12 May 2026 are grandfathered under the old treatment, and new residential dwellings are meant to be exempt, though the government hasn’t yet published the legislative instrument defining exactly what counts as “new” for this purpose. As at July 2026, the current law described above still applies for this and the next income year.
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
If you want to see how a rental loss (or surplus) plays into cash flow more broadly, our piece on cash flow positive versus negatively geared property walks through that trade-off.
How are a rental property’s building and fixtures depreciated?
Two separate tax rules cover the physical asset, and they don’t overlap:
- Division 43 (capital works) covers the building’s structure — bricks, concrete, fixed structural elements. For residential rental buildings where construction started on or after 16 September 1987, the ATO’s rate is 2.5% of the construction cost per year, claimable for 40 years from completion and apportioned to the days the property actually produced income.
- Division 40 (plant and equipment) covers separately identifiable depreciating assets with a limited effective life — ovens, carpets, air-conditioners, blinds and similar fittings.
Here’s the catch a lot of buyers of an established (second-hand) property don’t expect: since a rule introduced from 7:30pm AEST on 9 May 2017, an investor generally cannot claim a Division 40 depreciation deduction for a plant-and-equipment asset that was already installed in the property when they acquired it, if they weren’t the one who first used or installed it. In practice, that means a new owner of an established rental property usually can’t depreciate the second-hand oven, carpet or air-conditioner that came with the place — but the Division 43 capital works deduction on the building itself is unaffected, and any remaining years of that deduction still carry over to the new owner.
There are exceptions. The restriction doesn’t apply to corporate tax entities, superannuation funds other than SMSFs, managed investment trusts, or certain genuinely new residential premises meeting specific conditions. Notably, an SMSF-owned residential property is not excepted — the restriction still applies. Assets in a low-value pool are also carved out.
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
What do property managers charge, and is it deductible?
Property management fees are an ongoing, deductible cost for most landlords who use an agent, but there’s no government-set rate — it’s a private commercial arrangement you negotiate. The Real Estate Institute of Queensland (REIQ), an industry body rather than a government one, publishes typical ongoing management fees as a percentage of weekly rent that range roughly from 5% to 12% across the states, most commonly landing between 7% and 10%, plus a separate letting fee.
No Australian government body — not Moneysmart, not the Queensland Government, not Consumer Affairs Victoria, not Consumer Protection WA — publishes an official benchmark percentage. All of them describe the fee as negotiable between owner and agent, so it’s worth comparing quotes from more than one agency. If you’re weighing up a house, townhouse or apartment, management and body corporate costs are one of the differences our houses vs townhouses vs apartments comparison covers.
Do I need landlord insurance, and what does it typically cover?
Landlord insurance isn’t a legal requirement — it’s an optional add-on that sits alongside your standard building and contents cover. Under the legal definition in the ASIC Regulations 2001, a landlord insurance product provides cover for loss of, or damage to, property you lease to someone else, and for financial loss — including lost rental income — connected with that lease.
No government body publishes a typical annual premium for landlord insurance, so treat any premium figure you see quoted elsewhere as an estimate specific to that source, not a national benchmark. Insurers commonly market inclusions like public liability cover or malicious tenant-damage cover on top of the base definition above, but the exact combination varies by policy and insurer — check the product disclosure statement for whichever policy you’re considering. Separately, your lender or a body corporate may require its own building-insurance arrangements — that’s a different obligation to landlord insurance itself.
How much is land tax, and does it apply to my property?
Land tax is set by each state and territory individually — there’s no national land tax and no single comparison page. Every jurisdiction has its own act, its own revenue office and (except a genuine principal home) its own rules for which properties are liable. Below are the tax-free thresholds for individual owners, as at July 2026 — always check the relevant state’s own revenue office before relying on a figure, since these move with state budgets.
| State/Territory | Tax-free threshold (individuals) | Source |
|---|---|---|
| Victoria | $50,000 of taxable Victorian land value (a temporary COVID-debt surcharge of $500–$975+ layers on top above $50,000) | SRO Victoria |
| New South Wales | $1,075,000 of combined taxable land value (frozen, not indexed, since the 2024-25 NSW Budget) | Revenue NSW |
| Queensland | $600,000 of taxable freehold land value | Queensland Revenue Office |
| Western Australia | $300,000 of aggregated taxable land value (Perth-metro owners may also owe a separate 0.14% Metropolitan Region Improvement Tax) | WA Dept of Treasury and Finance |
| Tasmania | $125,000 of assessed land value | SRO Tasmania |
| Australian Capital Territory | No tax-free threshold — a fixed charge of $1,778 plus a marginal rate on Average Unimproved Value applies from 1 July 2026 | Revenue ACT |
| South Australia | $936,000 of total taxable South Australian site value for the 2026-27 land tax year (trust threshold $25,000); thresholds are re-indexed annually by gazette | RevenueSA |
| Northern Territory | No land tax at all — the only Australian jurisdiction with none | Northern Territory Government |
A genuine principal home is generally exempt from land tax in every state and territory — it’s investment and other non-exempt property that these thresholds typically apply to. Land tax on an income-producing rental property is itself one of the costs the ATO’s Rental properties guide lists as an immediate deduction, alongside costs like council rates, insurance and loan interest.
Tax outcomes depend on your circumstances — speak with a registered tax agent before acting.
How MyBrix handles ongoing rental costs for Brix investors
If you hold Brix in a rented property through MyBrix, you’re not managing these costs directly yourself. Under the Product Disclosure Statement, Net Rental Proceeds — gross rental income minus the rental management fee — are distributed monthly to all Brix holders (including MyBrix and the property owner) in proportion to their Brix holding at the time of the distribution. The rental management fee is paid before that monthly distribution is calculated, so the cost is already netted out before proceeds reach you.
What other ongoing costs does the ATO usually treat as deductible?
Beyond interest, depreciation, management fees and land tax, the ATO’s Rental properties guide sets out two groups of ongoing costs. Deductible immediately, in the year you pay them (and only if you actually bear the cost yourself, not the tenant): advertising for tenants, bank charges, body corporate fees and charges, cleaning, local council rates, gardening and lawn mowing, insurance (building, contents, public liability, loss of rent), lease document expenses, legal expenses (excluding acquisition and borrowing costs), mortgage discharge expenses, pest control, property agent’s fees and commissions, quantity surveyor’s fees, repairs and maintenance, secretarial and bookkeeping fees, servicing costs, tax-related expenses, travel and car expenses (to the extent they’re deductible), and water charges.
Three further categories are claimed over several income years rather than immediately: borrowing expenses, spread over five years from when the loan starts (or the loan term, if shorter) — unless total deductible borrowing expenses are $100 or less, in which case they’re fully deductible in the year incurred; the decline in value of depreciating assets (Division 40, allowed only in certain circumstances — see above); and capital works deductions (Division 43, covered earlier in this guide). Whether a specific cost falls into one of these categories, or is deductible at all, depends on your circumstances — check with a registered tax agent or the ATO’s rental properties guide directly.
How do these costs feed into rental yield?
Every deductible (and non-deductible) holding cost you carry reduces what actually lands in your pocket from the rent. That’s the difference between gross and net rental yield:
Net rental yield = (annual gross rent − annual operating expenses) ÷ property value × 100
This is a formula, not a market return — actual yields vary property by property and are never something this site predicts or generalises. Our guide to calculating rental yield: gross vs net walks through both formulas in full, including the difference between yield on your purchase price and a running yield on current value.
Where to get help with your specific situation
The categories above are general information about how ongoing rental property costs are typically treated — not a checklist for your own tax return. Whether a specific expense is deductible in full, deductible over time, or not deductible at all depends on your structure, how the property is used, and rules that continue to evolve (as the 1 July 2027 negative-gearing change shows). A registered tax agent can confirm exactly what applies to you and lodge accordingly.
