Owning an investment property offers more than just rental income and long-term growth — it also opens the door to valuable tax benefits. Whether you’re a first-time investor or expanding your portfolio, understanding how to get the most tax savings on investment property can help increase your cash flow and reduce your annual tax bill.
Let’s explore the most effective ways to claim deductions, use depreciation, and apply smart strategies to save more during tax time.
Why Tax Savings Matter for Property Investors
When you invest in property, you’re not just growing wealth — you’re also taking on costs. The good news is that many of these expenses can be claimed as deductions.
With proper planning, these tax savings on investment property can:
- Reduce your taxable income
- Increase your yearly tax refund
- Improve your return on investment
- Help you hold the property for longer and with less stress
But to take advantage of them, you need to understand what you can claim — and how.
Common Deductions That Offer Tax Savings
Here are some of the most common expenses that investors can claim to reduce their tax bill:
1. Loan Interest
You can claim the interest charged on your investment loan as a deduction. This is often one of the biggest tax savings on investment property, especially in the early years when interest costs are higher.
Note: You can’t claim the principal portion — only the interest.
2. Property Management Fees
Fees paid to your property manager, including leasing, inspection, and routine management services, are fully deductible.
So, when you outsource management, not only does it save you time, but it can also reduce your taxable income.
3. Repairs and Maintenance
If you need to fix a leaking tap, replace a broken window, or arrange pest control — these costs are usually tax deductible in the same year they occur.
Important: Initial repairs when you first buy the property are not immediately deductible — they’re added to your cost base for capital gains later.
4. Council Rates and Insurance
Ongoing property costs like council rates, water charges, and landlord insurance are claimable each year. These may seem small but add up to create significant tax savings on investment property over time.
Claiming Depreciation
Depreciation is one of the most powerful tools for investors — yet it’s often overlooked.
What Is Depreciation?
It refers to the natural wear and tear of the building and its internal assets (like carpets, air conditioning, appliances, etc.).
There are two main types:
- Capital works depreciation (Division 43): For the structure of the building (walls, roof, etc.)
- Plant and equipment depreciation (Division 40): For assets inside the property
By claiming depreciation, you can reduce your taxable income without spending more money out of pocket.
Do You Need a Depreciation Schedule?
Yes — to claim depreciation accurately, you’ll need a professional depreciation schedule prepared by a qualified quantity surveyor. This one-time cost is also tax deductible.
Negative Gearing: A Common Strategy
Negative gearing is a strategy used by many investors to maximise tax savings on investment property.
It means that your rental expenses are more than your rental income. The shortfall (loss) can be offset against your other income — like your salary — helping you pay less tax.
For example:
- Rental income: $25,000
- Expenses (interest, rates, fees, etc.): $30,000
- Loss: $5,000
That $5,000 can reduce your taxable income for the year.
Keep in mind: While it reduces your tax bill, it’s important the property shows strong long-term capital growth to justify this strategy.
Other Claimable Costs to Keep in Mind
Additional deductions you may be eligible to claim include:
- Accounting or tax agent fees
- Travel expenses (if applicable)
- Lease document preparation
- Bank charges on your investment loan
- Legal advice related to the property
All these contribute to increased tax savings on investment property and help you maximise your net return.
Timing Matters: Prepaying Expenses
Another useful tip is prepaying certain expenses — such as insurance or loan interest — before June 30. This allows you to bring forward the deduction to the current financial year and increase your immediate tax savings.
Keep Accurate Records
To claim all these deductions, you’ll need proper documentation. Keep receipts, invoices, loan statements, inspection reports, and depreciation schedules safely filed.
It’s also a good idea to use an accountant who specialises in property investment to help you stay compliant and maximise your deductions.
Real-Life Example of Tax Savings on Investment Property
Let’s say you own a rental unit in Truganina. Your rental income is $26,000 per year. Your eligible deductions total $32,000, including:
- Interest: $20,000
- Property management: $2,000
- Repairs and maintenance: $1,500
- Depreciation: $5,000
- Insurance and other costs: $3,500
This means you’ve made a $6,000 loss — which can be offset against your salary, reducing your tax bill and improving your overall cash position.
Final Thoughts
Getting the most tax savings on investment property requires smart planning, good record-keeping, and understanding what you can claim.
When done right, these tax benefits can turn a break-even investment into a positively geared one — or help you hold a long-term asset more comfortably.
Need Help with Property or Tax Guidance?
We specialise in supporting property investors across Melbourne’s west — from managing your property to helping you connect with property-savvy accountants and financial advisors.
Get in touch today to learn more about how you can unlock more tax savings on investment property in 2025 and beyond.
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