By Jason Given · 2026-08-16 · 7 min read
Loan interest is the big one. Interest on your investment property loan is fully deductible in the year it is incurred. On a $600,000 loan at 6.5%, that is roughly $39,000 per year - your single largest tax deduction as a property investor. Most investors know this and claim it correctly.
Beyond interest, the well-known deductions include property management fees, council rates, landlord insurance, repairs and maintenance, and water charges. These are straightforward - your property manager or accountant handles them as part of your annual tax return.
Depreciation is another significant one. A quantity surveyor report on a newer investment property can add $5,000 to $15,000 per year in deductions on the building structure and fixtures - things like carpets, blinds, hot water systems, and appliances. The cost of the report itself is also deductible.
These deductions are well understood. But there is a category that many investors either miss entirely or claim incorrectly: borrowing costs.
The ATO classifies the following as borrowing costs. If the total exceeds $100, they are deductible over 5 years (or the loan term, whichever is shorter):
If your total borrowing costs exceed $100, they must be spread over 5 years. If total borrowing costs are $100 or less, you can claim the full amount in the year incurred.
If the loan term is less than 5 years, spread the costs over the loan term instead.
If you sell the property or refinance before the 5 years is up, you can claim the remaining unclaimed balance in that financial year. This is an important rule that many investors forget - it can result in a significant one-off deduction in the year of sale.
Example: You incur $15,000 in borrowing costs - $12,000 in LMI plus $3,000 in establishment and legal fees. Your annual deduction is $3,000 per year for 5 years. If you sell the property in year 3, you have claimed $9,000. The remaining $6,000 is deductible in that year of sale.
Interest is the largest deduction, but the rules around what qualifies are based on purpose - not security. The ATO does not care which property the loan is secured against. What matters is what the borrowed money was used for.
The key takeaway: keep your loan accounts separated by purpose. Mixing personal and investment borrowing in one loan account makes apportionment complex and creates audit risk.
For more on structuring investment loans around tax strategy, see our guide to refinancing investment property for tax purposes.
Yes. Interest on a loan used to purchase an income-producing property is fully tax deductible in the year it is incurred. This is the largest deduction most property investors claim. On a $600,000 investment loan at 6.5%, annual interest is approximately $39,000 - all deductible against your rental and other income.
Yes. Mortgage broker fees paid in connection with an investment property loan are classified as borrowing costs by the ATO. If the total borrowing costs exceed $100, they are deducted over 5 years (or the loan term, whichever is shorter). If under $100, they are deductible in full in the year incurred.
Yes. Lenders Mortgage Insurance paid on an investment property loan is a borrowing cost and is deductible over 5 years (or the loan term). On a $12,000 LMI premium, that is $2,400 per year for 5 years. If you sell the property before the 5 years is up, you can claim the remaining balance in that year.
Yes. Borrowing costs are deductible regardless of whether the property is positively or negatively geared. If the property runs at a loss (rental income is less than expenses including interest), the loss can be offset against your other income - reducing your overall tax. This is negative gearing.
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