Rental property deductions and the 2027 negative-gearing changes

Rental deductions are an ATO focus area every year, and from 01-07-2027 the ground shifts: negative gearing will be limited to new builds and the 50% CGT discount will be replaced. Those changes are now law. Here is what you can claim today, how to claim it properly, and what the 2027 changes do and do not touch.

What you can claim immediately

Provided the property is rented or genuinely available for rent on commercial terms, these are deductible in the year you incur them:

• Interest on the loan used to buy the property or fund deductible expenses — not the portion of any redraw used privately.
• Property agent's fees and commission, and advertising for tenants.
• Council rates, water charges and land tax. Land tax is claimed in the year the liability relates to, not the year you pay it.
• Insurance — building, contents, public liability and loss of rent.
• Repairs and maintenance that restore the property to its previous condition, plus cleaning, gardening and pest control.
• Body corporate administrative fund and general sinking fund levies. A special levy raised to fund a capital improvement is not immediately deductible; it may be claimable as capital works once the work is done.
• Some legal expenses, such as evicting a non-paying tenant or recovering lost rent.
• Prepaid expenses under $1,000, or larger prepayments where the service period is 12 months or less and ends in the next income year.
• Depreciating assets costing $300 or less, unless they are part of a set that together costs more.

What you claim over time

• Capital works — the building itself and structural improvements, alterations and extensions — are generally deductible at 2.5% a year over 40 years from completion (a 4% rate over 25 years applies only in limited cases). The deduction cannot start until construction is finished, and any undeducted amount reduces the cost base when you sell.
• Depreciating assets over $300 — a new oven, dishwasher, carpet, blinds or air-conditioner — are claimed over their effective life using either the diminishing value or prime cost method.
• Borrowing expenses — loan establishment fees, lender's mortgage insurance, mortgage stamp duty, valuation and broker fees — are spread over five years or the loan term, whichever is shorter, with a pro-rata first year. If the total is $100 or less, claim it all at once; if you repay the loan early, claim the balance that year.

What you can't claim

• Travel to inspect, maintain or collect rent from a residential rental — not deductible since 01-07-2017 unless you are in the business of letting properties or an excluded entity such as a company. The cost cannot be added to the cost base either.
• Second-hand depreciating assets — items that were already in the property when you bought it, or that you used privately first. Decline in value is only claimable if you bought the asset before 7:30 pm on 09-05-2017 and installed it in the rental before 01-07-2017. Brand-new assets you buy for the property still qualify.
• Purchase costs — stamp duty on the transfer, conveyancing and solicitor's fees — are capital. They go into the CGT cost base and reduce your gain on sale, not your rental income.
• Initial repairs to defects that existed at purchase, and improvements that go beyond restoring the original, are capital works, not repairs.
• Expenses paid by the tenant, and any expense relating to private use.

Apportioning private use and co-ownership

Co-owners split income and expenses according to their legal interest — equally for joint tenants, by registered share for tenants in common — regardless of who paid the bills or any side agreement. Where the property is used privately for part of the year, or rented at below-market rent to family, expenses must be apportioned on a fair and reasonable basis. The ATO's time-based method uses the days the property was rented or genuinely available over the days you owned it; the area-based method applies where you rent out part of your home. Where rent is below market, the ATO's view is that deductions are limited to the rent received. Expenses that relate solely to renting — agent commission, advertising — do not need apportioning. A holiday home that is used by family and friends, or blocked out over peak periods, will attract close attention to the "genuinely available" question.

Record-keeping

Keep records for five years, counted from the later of the date you lodge, your last depreciation claim, or the point at which no CGT event can occur. That means purchase contracts, loan documents, agent statements, invoices, depreciation schedules and the sale contract, kept until at least five years after you sell. Our rental property checklist lists what we ask for at tax time.

The 2027 changes: negative gearing and CGT

On 12-05-2026 the government announced, and Parliament has since passed in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, two changes that apply from 01-07-2027. The ATO's page describes them as follows.

• Negative gearing limited to new builds. From 1 July 2027, losses on residential property investments can only be offset against other income — wages, business income — where the property is a new build. Properties held at 7:30 pm AEST on 12-05-2026 are exempt. Treasury's explanation adds that investors who buy established housing after that time can still deduct losses against income from residential property, including capital gains, and carry excess losses forward, but not against non-residential income such as wages.
• CGT discount replaced. The 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation — so you are taxed on the real gain after inflation — together with a 30% minimum tax rate on capital gains. The ATO states the reforms apply only to gains that accrue after 1 July 2027.
• New builds keep a choice. Treasury's Budget material states that investors in new builds can choose either the existing 50% discount or the new indexation-and-minimum-rate arrangements. The precise definition of a new build, and how the Act treats affordable housing, should be checked against the final legislation and ATO guidance before you rely on it.

What this means in practice: nothing changes for the 2025–26 or 2026–27 returns. An established property you already own continues to be negatively geared after 1 July 2027. The decisions that matter are for anyone buying an established property from now on, and for anyone planning to hold through 2027 and sell later, where the split between pre- and post-July 2027 gain will determine how the new rules bite. We will update this page as the ATO publishes its detailed guidance.

What SMT does

We prepare rental schedules for each property with interest, agent statements and depreciation reconciled, apportion for private use and co-ownership, keep a running cost base so the sale year is not a scramble, and model how the 2027 changes affect a planned purchase or sale. Rental schedules are part of every individual tax return we lodge.

Sources

• ATO — Common property expenses
• ATO — How to claim rental expenses (apportionment and co-ownership)
• ATO — Capital expenses (capital works)
• ATO — Depreciating assets in rental properties
• ATO — Second-hand depreciating assets
• ATO — Borrowing expenses
• ATO — Rental properties and travel expenses
• ATO — Records for rental properties and holiday homes
• ATO — Tax reform: reforming negative gearing and capital gains tax
• Treasury — Budget 2026–27 tax system changes