Tax time for property investors is part record-keeping, part timing strategy, and part understanding what the ATO actually wants to see this year. Here's a practical guide for the 2025-26 financial year.

The categories you can claim

1. Interest on the loan

Still the single biggest deduction for most investors. The 2024-26 cycle of RBA rate movements has pushed average interest expenses up sharply , make sure your loan statements are organised by financial year. If you have an offset account, you can only deduct interest charged on the actual drawn balance.

2. Depreciation (Division 40 and Division 43)

Two separate streams that landlords commonly conflate:

  • Division 40 (plant & equipment): dishwashers, ovens, blinds, carpet, air-conditioning. Depreciation rates vary by asset class. The 2017 reform removed deductions for plant & equipment in second-hand residential properties , if you bought existing, you can only depreciate items you installed.
  • Division 43 (capital works): the building itself. 2.5% per year for 40 years from construction date if built after 1987. This is by far the largest depreciation claim for most owners and the most commonly missed.

A quantity surveyor's depreciation schedule costs $400-$700 and is itself deductible. If you don't have one and your property was built after 1987, you are very likely leaving thousands of dollars on the table.

3. Property management fees

100% deductible in the year incurred , management fees, leasing fees, end-of-financial-year statement fees, inspection fees.

4. Repairs vs. improvements (the ATO trap)

This is the category the ATO has flagged for increased audit attention in 2025-26. The distinction:

  • Repair: restoring something to its original condition (replacing a broken tile with the same tile). Deductible in the year of expense.
  • Improvement / capital works: enhancing the asset (replacing a tiled kitchen splashback with engineered stone). Not immediately deductible; depreciated over time.

The trap: a "repair" that uses upgraded materials can become an improvement. Same-spec replacement is the safe path.

5. Insurance

Building, landlord, public liability , all deductible. Premiums on insurance that covers your private use (e.g. holiday home portion) are apportioned.

6. Council rates, water rates, land tax

Deductible in the year billed. Note: land tax thresholds have moved in NSW and VIC for 2025-26 , check your state-specific changes.

7. Body corporate / strata fees

Administrative fund contributions are deductible in the year. Sinking fund contributions are deductible only when spent on works that meet the repairs test.

8. Travel costs (limited)

Since 2017, you cannot deduct travel costs for residential property inspection or maintenance. Travel to commercial property inspections is still deductible. This is the most common error in DIY tax returns.

9. Borrowing expenses

Loan establishment fees, mortgage broker fees, lender's mortgage insurance , deductible over five years or the loan term, whichever is shorter.

10. Repairs to fences, gardens, paths

Often forgotten because they fall under "maintenance" mentally. They're repairs. Keep the receipts.

11. Pest control, gardening, cleaning between tenancies

All deductible.

12. Legal expenses

Drafting leases, recovering unpaid rent, NCAT/VCAT/QCAT proceedings , deductible. Note: legal costs for buying or selling the property itself are capital, not revenue.

What the ATO is auditing in 2025-26

The ATO's published focus areas this year:
1. Loan interest apportionment when offset accounts are used for private spending.
2. Repairs vs improvements , particularly bathroom and kitchen renovations being claimed as repairs.
3. Holiday homes , claiming full deductions on properties used personally for part of the year.
4. Co-ownership splits , deductions need to match ownership percentages exactly.

The records you must keep

  • Loan statements (5 years)
  • Receipts for every claimed expense (5 years)
  • Depreciation schedule
  • Tenant ledger / rent roll
  • Inspection reports
  • Council rate notices
  • Insurance certificates

A good Portfolio Manager gives you all of this packaged at June 30. If you're getting raw bank statements and being asked to reconcile yourself, that's a workflow gap your manager should be closing for you.

If you'd like to know what a properly managed end-of-financial-year statement looks like , itemised by deduction category, ready for your accountant , we can show you a sample report.

This article is general information only and not tax advice. Speak to your accountant or registered tax agent for advice on your specific situation.