Quick Answer:
For 2026-27, you can still claim rental expenses like interest, rates, repairs, and depreciation as usual. Negative gearing changes do not start until 1 July 2027 and only affect established properties bought after 12 May 2026, and new ATO guidance now requires holiday homes to be mainly used for rental income to claim ownership expenses.
Rental property tax rules have not changed much for the 2026-27 year itself, but two developments are worth understanding now: fresh ATO guidance on holiday homes and short-term rentals, and a negative gearing reform that starts in 2027-28 but affects decisions you might make today.
Quick Summary: Rental Property Deductions 2026-27
- Immediate deductions: interest on loans, council and water rates, insurance, repairs, agent fees, advertising, and depreciating assets costing $300 or less
- Deductions over several years: capital works (Division 43), borrowing expenses, and decline in value of assets costing more than $300
- Still no deduction for holding vacant land, unchanged since 1 July 2019
- New ATO ruling (TR 2026/1) and two compliance guidelines now set out how holiday homes and short-term rentals are assessed
- Negative gearing quarantining starts 1 July 2027, and only applies to established residential properties bought after 12 May 2026
- Properties held on 30 June 2027 get a value reset for CGT purposes, with existing gains keeping the 50% discount
1. Expenses You Can Claim Immediately
You can claim a deduction in the same income year you incur the expense for costs directly linked to earning rental income, including:
- Interest on your investment loan
- Council rates, water and sewerage rates, and land tax
- Building, contents, and public liability insurance
- Repairs and maintenance (not improvements)
- Property agent fees and commissions
- Advertising for tenants, cleaning, gardening, and pest control
- Depreciating assets costing $300 or less
Full detail on what you can and can’t claim is on the ATO’s rental expenses page.
2. Expenses You Claim Over Several Years
Some costs are spread across multiple income years rather than claimed upfront:
- Capital works deductions (Division 43) for construction and structural improvement costs
- Borrowing expenses, spread over 5 years or the loan term, whichever is shorter
- Decline in value of depreciating assets costing more than $300
3. Expenses You Can’t Claim
- Holding costs for vacant land, unchanged since 1 July 2019, even if you intend to build a rental property on it
- Second-hand depreciating assets acquired after 9 May 2017 (in most cases)
- The private-use portion of any expense, apportioned on a fair and reasonable basis
- Acquisition and disposal costs of the property itself, and travel to inspect a property before you buy it
4. New ATO Guidance on Holiday Homes and Short-Term Rentals
The ATO has released Taxation Ruling TR 2026/1 along with two Practical Compliance Guidelines (PCG 2026/2 and PCG 2026/3), updating how it assesses rental income and expenses across both long-term and short-term rentals, including properties listed on booking platforms.
The key test for a holiday home that you also rent out: it must be used, or held for use, mainly to produce rental income for you to claim ownership and use expenses such as interest, council and water rates, body corporate fees, and repairs and maintenance.
If the property is not mainly used to produce rental income, only expenses directly tied to letting it out, such as advertising, cleaning after a guest stays, and booking or commission fees, remain deductible. If it is mainly used for rental income but has some private use, such as a week or two in the off season, the ownership and use expenses can still be claimed but must be apportioned to exclude the private-use period.
PCG 2026/2 sets out methods the ATO accepts as fair and reasonable when apportioning expenses between income-producing and private use. If your rental strategy involves any short-term or holiday-home element, it is worth reviewing your record-keeping against this guidance before you lodge. See our rental property compliance guide for what the ATO is checking most closely this year.
5. Negative Gearing Changes Coming From 1 July 2027
This does not affect your 2026-27 return, but it affects decisions you make about property this year, so it is worth understanding now. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received assent on 26 June 2026 and quarantines negative gearing losses starting from the 2027-28 income year.
Under the reform, if you buy an established residential property after 12 May 2026 (budget night), rental losses on that property can no longer offset your salary or other income from 1 July 2027 onward. Instead, the loss is quarantined: it can only be offset first against residential rental income, then against residential capital gains, and it carries forward indefinitely if unused.
Properties bought on or before budget night are grandfathered and keep the current rules. New residential dwellings are also intended to be excluded from the quarantining rule, though the precise definition of a qualifying new build is still to be set by a ministerial instrument, so treat that carve-out as unconfirmed until it is made.
A related change applies to capital gains tax: residential properties held on 30 June 2027 are treated as sold at market value and reacquired the next day. Growth up to that point keeps the existing 50% CGT discount when you eventually sell, deferred until sale. Growth after 1 July 2027 is instead subject to indexation with a 30% discount floor rather than the flat 50% discount. In practice, this makes it worth recording the market value of any investment property you hold as at 30 June 2027, whether or not you plan to sell.
Before You Lodge: A Quick Checklist
- Separate repairs (deductible now) from improvements (capital works, deducted over time).
- Check whether any part of the year the property was vacant, used privately, or rented below market rate, and apportion expenses accordingly.
- If you own a holiday home you also rent out, confirm it was mainly used to produce rental income before claiming ownership expenses.
- Keep evidence the property was genuinely held to produce rental income, such as agent communications, for any period it was not tenanted.
- If you bought an established residential property after 12 May 2026, start tracking it separately, since the loss quarantining rule will apply to it from the 2027-28 year. Our top tax offsets guide and small business tax changes guide cover other 2026-27 changes that may also apply if you run a business alongside your investments.
Why Professional Help Matters
Rental property tax is rarely simple once you factor in apportionment, capital works schedules, holiday-home rules, and now a negative gearing change to plan around. ITP Accounting Professionals works with property investors across every stage, from first purchase to portfolio planning around the 2027 changes.
Don’t guess on apportionment or miss a deduction. Book a consultation with ITP to check your rental property return before you lodge.
Frequently Asked Questions
No. The quarantining rule does not start until the 2027-28 income year (from 1 July 2027), and even then it only applies to established residential properties bought after 12 May 2026.
Yes. For 2026-27, interest on rental property loans remains fully deductible in the year it is incurred, in the same way as previous years.
The ATO has issued updated guidance (TR 2026/1 and two compliance guidelines) clarifying that a holiday home you also rent out must be mainly used to produce rental income for you to claim ownership and use expenses like interest, rates, and repairs.
No. Since 1 July 2019, holding costs for vacant land cannot be claimed as a deduction, even if you intend to build a rental property on it, with limited exceptions for land affected by a natural disaster.
Stay Ahead of the Changes
Most rental property rules are steady for 2026-27, but the holiday home guidance and the upcoming negative gearing reform are both worth acting on now rather than at tax time. ITP Accounting Professionals has helped Australian property investors get their deductions right for decades. If you want a second set of eyes on your rental property position, get in touch with your local ITP office before your next lodgement.
Disclaimer: This article provides general information only and is not a substitute for professional tax advice for your specific situation. It reflects current tax law and ATO guidance as at September 2026. Before acting on any of these thresholds, speak with a qualified tax professional who can assess your circumstances.