Investment property: buying one, by the rules

Buying an investment property, by the rules

A home bought to rent out comes with two sets of rules. The Australian Taxation Office’s rules decide how the rent and the costs are taxed; state and territory rules decide land tax, the bond and what happens to a tenant’s lease. This guide sets both out in the words of the bodies that make them.

A guide published by Dotto. General information, not tax, financial or legal advice. For how a rule applies to you, the ATO’s residential rental properties pages are the place to check. The ATO says tax agents must be registered with the Tax Practitioners Board, and that its website lets you check whether a person is registered.

Where the ATO puts each cost

The ATO sorts rental expenses into three categories: those you can claim a deduction for in the income year you incur them, those you claim over several years, and those you can’t claim. Some of the costs of buying can’t be claimed but are usually included in the property’s cost base instead, which the ATO says would reduce any capital gains tax when you sell.

A ledger keeps money in its right-hand columns. This one keeps a pencil tick there instead, in the column the ATO’s pages give each cost a buyer meets early on.

Common costs of a rental property and how the ATO treats each, read from its rental expense pages
Cost	This year	Over several years	Cost base	Not claimable
Interest on the loan used to buy the rental	Yes	No	No	No
Council rates, water charges and land tax	Yes	No	No	No
Advertising for tenants, and the property agent’s fees and commission	Yes	No	No	No
Repairs for wear and tear or damage that happens while the property is rented	Yes	No	No	No
Depreciating assets costing $300 or less	Yes	No	No	No
Borrowing expenses, such as loan establishment fees and lenders mortgage insuranceSpread over 5 years or the loan term, whichever is shorter; claimed in full if they total $100 or less.	No	Yes	No	No
Capital works: the building, and structural improvements such as a fence or a driveway, for a property built after 17 July 1985, once construction is complete, and never more than the construction costs	No	Yes	No	No
Depreciating assets costing more than $300	No	Yes	No	No
Stamp duty on the transfer of the property	No	No	Yes	No
Conveyancing costs paid to a conveyancer or solicitor for the purchase	No	No	Yes	No
Initial repairs: fixing damage that existed when the property was boughtThe ATO says initial repairs to a building or a fence can generally be claimed over 40 years, as a capital works deduction. Their cost forms part of the cost base, which is reduced by the amounts claimed (or that could have been claimed) as capital works.	No	Yes	Yes	No
Travel to inspect, maintain or collect rent for a residential rentalSince 1 July 2017, unless the owner is an excluded entity or is in the business of letting rental properties.	No	No	No	Yes
The decline in value of second-hand depreciating assets bought after 9 May 2017	No	No	No	Yes
The value of your own labour on a repairThe materials can be claimed.	No	No	No	Yes
Water or electricity charges your tenant pays	No	No	No	Yes

Common costs of a rental property and how the ATO treats each, read from its rental expense pages

Cost

This year

Over several years

Cost base

Not claimable

Interest on the loan used to buy the rental

Yes

Council rates, water charges and land tax

Yes

Advertising for tenants, and the property agent’s fees and commission

Yes

Repairs for wear and tear or damage that happens while the property is rented

Yes

Depreciating assets costing $300 or less

Yes

Borrowing expenses, such as loan establishment fees and lenders mortgage insuranceSpread over 5 years or the loan term, whichever is shorter; claimed in full if they total $100 or less.

Yes

Capital works: the building, and structural improvements such as a fence or a driveway, for a property built after 17 July 1985, once construction is complete, and never more than the construction costs

Yes

Depreciating assets costing more than $300

Yes

Stamp duty on the transfer of the property

Yes

Conveyancing costs paid to a conveyancer or solicitor for the purchase

Yes

Initial repairs: fixing damage that existed when the property was boughtThe ATO says initial repairs to a building or a fence can generally be claimed over 40 years, as a capital works deduction. Their cost forms part of the cost base, which is reduced by the amounts claimed (or that could have been claimed) as capital works.

Yes

Travel to inspect, maintain or collect rent for a residential rentalSince 1 July 2017, unless the owner is an excluded entity or is in the business of letting rental properties.

Yes

The decline in value of second-hand depreciating assets bought after 9 May 2017

Yes

The value of your own labour on a repairThe materials can be claimed.

Yes

Water or electricity charges your tenant pays

Yes

Figures kept by hand, in columns down a sheet of paper. The ledger above keeps a tick in its columns instead. Photo by PublicDomainPictures on Pixabay.

Two conditions sit under every line. The property has to be rented, or available to rent on commercial terms, for its costs to be deductible. And where it is also used privately, rented below market rates or only partly rented, the ATO says expenses are apportioned on a fair and reasonable basis, usually by the time it was rented or the area that was rented. A holiday home has a further rule: its ownership and use expenses can’t be claimed unless its main use, or the main use it is held for, is earning rental income. Folio 1 sets out the income side and the apportioning.

The order of things

Owning a rental, in order

The ATO’s page for people about to buy a rental walks through three stages: before you buy, when you’ve bought but before it’s tenanted, and after it is rented. Its points, in brief, with the sale added last from the ATO’s page on selling a rental:

Before you buy
Records need to be kept for as long as the property is owned and for 5 years after it is sold. Borrowing expenses are spread over 5 years or the loan term, whichever is shorter; the stamp duty and the legal costs of the purchase can’t be claimed, though they may be included in the cost base, and nor can the amount borrowed.
Bought, not yet rented
Fixing damage that was there when you bought, such as scuffed walls or damaged floorboards, is an initial repair: a capital expense, not an immediate deduction.
Rented
All income from the property is declared, including bond money kept when tenants leave damage and insurance payouts. The bond and condition report are folio 5.
Sold
Selling may make a capital gain or loss, worked out from the cost base. Folio 2 adds it up.

The same page points to the ATO’s net rental income worksheet, which lists common rental expenses and helps estimate whether a property is likely to make a net income or loss before you buy.

What changes on 1 July 2027

On 12 May 2026, in the 2026–27 Federal Budget, the Government announced reforms to negative gearing and capital gains tax. The ATO’s page on them says: “These measures are now law.”

Negative gearing, from 1 July 2027

Negative gearing for residential property investments is limited to new builds. Properties held at the announcement, 7:30pm AEST on 12 May 2026, are exempt from the negative gearing changes.

Capital gains, from 1 July 2027

For individuals, trusts and partnerships, cost base indexation and a minimum tax rate of 30% on capital gains take the place of the 50% CGT discount. The CGT reforms apply only to gains that accrue after 1 July 2027.

The ATO adds that the negative gearing changes don’t apply in the 2025–26 tax return, and that the capital gains changes don’t apply to Tax Time 2026. Its page links to the amending Acts and the Budget papers for the detail.

Buying an investment property, by the rules

Where the ATO puts each cost

Owning a rental, in order

What changes on 1 July 2027

Six accounts, each on its own page

Where the rules are kept