Which property purchase costs are immediately deductible?

Most property purchase costs are not immediately deductible in the year you acquire an investment property. Stamp duty, conveyancing fees, building and pest inspections, and mortgage establishment fees are either added to your cost base for capital gains tax purposes or amortised over five years. Only ongoing expenses incurred after settlement—like interest on your loan, property management fees, and repairs—are typically deductible in the year you pay them. Understanding this distinction is critical because mistiming deductions can trigger an ATO audit or leave money on the table when you eventually sell.

What counts as a property purchase cost?

The ATO groups acquisition expenses into three buckets: costs added to the cost base (non-deductible until you sell), costs deductible over five years, and costs immediately deductible. For a property settled in FY2024, your cost base includes the purchase price plus non-deductible costs like:

• Stamp duty (also called transfer duty). In Victoria, this is approximately $55,000 on a $1 million property; in NSW, roughly $40,490. These amounts are added to your cost base and reduce capital gains tax when you dispose of the asset, but you get no annual deduction.
• Conveyancing and legal fees for the purchase contract and title transfer.
• Building and pest inspection reports obtained before settlement.
• Valuation fees required by your lender.
• Title search and certificate fees.

These costs form part of your property's acquisition price. When you calculate capital gains on sale, your cost base is the purchase price plus these non-deductible expenses, which lowers your taxable gain.

Borrowing costs: the five-year write-off

Loan establishment fees, lender's mortgage insurance (LMI), and mortgage broker commissions are classified as borrowing expenses under Division 25-25 of the Income Tax Assessment Act 1997. If the total borrowing costs for a single loan exceed $100, you must spread the deduction over five years or the life of the loan, whichever is shorter. For a loan taken out on 1 July 2023 with $3,300 in establishment fees, you claim $660 per year from FY2024 through FY2028.

Key points:

• Loan application fees, valuation fees charged by the lender, and LMI premiums all count toward the $100 threshold.
• If you refinance or repay the loan early, you can claim the remaining unamortised balance in the year of discharge.
• Discharge fees for an old loan are added to the five-year pool for the new loan if you refinance to buy or improve the same investment property.

Use InvestorJoint's negative gearing calculator to model how spreading these costs affects your annual taxable income and cash position.

Interest: the headline deduction

Loan interest on a property used to produce assessable income is deductible in the year you pay it, under section 8-1 (general deduction) or specific debt deduction provisions. This is the largest annual deduction most investors claim. For a $750,000 interest-only loan at 6.5% p.a., you deduct approximately $48,750 each year.

Two traps:

1. Mixed-purpose loans. If you redraw $20,000 from your investment loan to fund a personal holiday, interest attributable to that $20,000 is not deductible. The ATO requires you to apportion interest by loan purpose.
2. Pre-settlement interest on a construction loan is capitalised into the cost base until the property is ready to produce income. Once you receive the certificate of occupancy and advertise for tenants, interest becomes deductible from that date.

InvestorJoint tracks loan purpose and apportionment across entities (personal, trust, SMSF, company) so your Tax Pack reflects only deductible interest.

Costs incurred after settlement: immediately deductible

Once the property settles and you make it available for rent, a new category of expenses becomes immediately deductible:

• Property management fees (typically 5–8% of gross rent plus letting fees).
• Council rates and water rates for the portion of the year the property is rented or genuinely available.
• Landlord insurance premiums.
• Repairs and maintenance (but not improvements—see below).
• Advertising for tenants on realestate.com.au, Domain, or through your agent.
• Strata levies (body corporate fees) for apartments and townhouses.

These are deductible in the income year you incur them, regardless of when you pay. If your FY2024 management statement shows $4,200 in fees but you paid only $3,800 by 30 June, you still claim $4,200 on an accruals basis (though most individual investors use cash basis for simplicity).

Repairs vs. improvements: the capital works trap

A repair restores an asset to its previous condition and is immediately deductible. Replacing broken roof tiles after a storm is a repair. An improvement enhances the property beyond its original state and must be depreciated as a capital works deduction (Division 43) at 2.5% per year for 40 years, or claimed under Division 40 if it's plant and equipment.

Examples:

• Repainting a rental property in the same colour scheme is a repair (deductible now).
• Installing a brand-new kitchen where an old but functional one existed is an improvement (2.5% per year over 40 years if structural, or various rates under Division 40 for appliances).
• Replacing a broken hot water system with a similar model is a repair; upgrading from electric to solar is partly improvement.

The initial repairs doctrine is critical: if you buy a property in disrepair and fix it before first renting it out, those expenses are typically added to the cost base or treated as improvements, not immediately deductible repairs. TR 97/23 clarifies that repairs are only deductible if the property was previously income-producing and the defect arose during that use.

For complex scenarios—renovating a deceased estate property held in a family trust before leasing it—consult your accountant. InvestorJoint's depreciation calculator models Division 40 and 43 schedules across entities.

Depreciable assets: Division 40 and Division 43

Two depreciation regimes apply to investment properties:

1. Division 43 – Capital works. The building structure (walls, roof, permanent fixtures) depreciates at 2.5% per year if construction began after 15 September 1987. A $400,000 building eligible for Division 43 yields $10,000 per year for 40 years.
2. Division 40 – Plant and equipment. Removable items like carpets, blinds, ovens, air conditioners, and hot water systems depreciate at varying rates (5–20% diminishing value or prime cost). A $15,000 kitchen appliance package might yield $2,250 in year one under diminishing value.

Both deductions reduce taxable income each year but are not acquisition costs. They're calculated from the property's cost base (which includes stamp duty and legals). If you bought a property for $800,000 and paid $44,000 in stamp duty and $2,500 in conveyancing, your cost base is $846,500. Division 43 applies to the building portion of that base.

Second-hand property trap: From 1 July 2017, investors who purchase second-hand residential property (previously used as a residence) cannot claim Division 40 depreciation on plant and equipment that was already installed. You can still claim Division 43 on the structure and depreciation on any new assets you install. This rule does not apply to commercial property or new residential builds.

Order a quantity surveyor's report within the first year of ownership. Fees ($600–$1,200) are deductible over five years as a borrowing cost or immediately as a tax-agent-related expense, depending on how you categorise it. InvestorJoint users upload depreciation schedules for each property, and the platform auto-populates annual Division 40 and 43 deductions in your Tax Pack.

Land tax, council rates, and holding costs before first tenant

If you purchase a property in May 2024 but don't secure a tenant until September 2024, are the May–August holding costs deductible? The answer depends on whether the property was genuinely available for rent.

• Council rates and land tax for the pre-rental period are not deductible if the property was undergoing renovations or was not advertised. Once you advertise (even if vacant), rates and taxes are deductible.
• Insurance follows the same rule: deductible from the date the property is income-producing or genuinely available.
• Interest on the loan is deductible from settlement if the loan purpose is to acquire an income-producing asset, even if no rent has yet been received. This is a key distinction: loan interest deductibility hinges on the purpose of the borrowing, not the timing of income.

Document your advertising and agent communications. The ATO has disallowed deductions for extended vacancies where taxpayers couldn't prove genuine availability (e.g., listing for $1,000/week in a $400/week market).

State-specific quirks: Victoria and NSW examples

Stamp duty rates vary dramatically by state, and some jurisdictions offer concessions that affect your cost base:

• Victoria: First-home buyers pay zero stamp duty on properties up to $600,000 (as of 2024) and reduced duty up to $750,000. If you're an investor, you pay full duty—$27,500 on a $600,000 property—which is added to your cost base.
• NSW: Foreign purchasers pay an additional 8% surcharge on top of standard transfer duty. A $1 million purchase incurs roughly $40,490 standard duty plus $80,000 surcharge ($120,490 total), all added to the cost base. The surcharge is not separately deductible.
• Queensland: From 1 August 2023, an additional 2% foreign acquirer duty applies. A $800,000 purchase attracts approximately $31,025 standard duty plus $16,000 surcharge.

Use InvestorJoint's state-specific stamp duty calculators—Victoria, NSW, Queensland—to forecast your upfront cost base before settlement. The platform stores each entity's acquisition date and costs, auto-calculating CGT cost base when you model a sale in the hold vs. sell calculator.

SMSF and trust購入: entity-level considerations

When a self-managed super fund acquires property, the same acquisition-cost rules apply: stamp duty and legals go into the cost base, borrowing costs amortise over five years, and interest is deductible against the fund's assessable income (typically rental income taxed at 15%). However, SMSFs cannot claim losses against other income; negative gearing is quarantined within the fund.

For a discretionary family trust, acquisition costs are attributed to the trust, and net rental income (after deductions) is distributed to beneficiaries. The trust itself holds the cost base, so when the property sells, capital gains are calculated at the trust level then streamed to beneficiaries with the 50% CGT discount (if held >12 months and distributed to individuals).

Company structures do not receive the 50% CGT discount. All capital gains are taxed at the 25% or 30% company rate, making cost-base optimisation—capturing every dollar of stamp duty, legals, and improvements—more valuable.

InvestorJoint's entity-first architecture tracks acquisition costs separately for each structure. When you generate a Tax Pack for your SMSF or family trust, the platform itemises deductible vs. capitalised costs according to the entity type. See our guides on SMSF property investment, family trusts, and company purchases.

What this means for your portfolio

Misclassifying acquisition costs is one of the most common errors in DIY property tax returns. Claiming stamp duty as an immediate deduction triggers an ATO mismatch notice; failing to amortise borrowing costs over five years leaves money on the table. InvestorJoint automates the split: acquisition costs feed into your cost base, borrowing costs amortise, and ongoing expenses flow into annual deductions.

For investors managing multiple properties across trusts, companies, and SMSFs, tracking five-year loan amortisation schedules manually is impractical. InvestorJoint's platform recalculates remaining balances each financial year and prefills your Tax Pack with the correct amount, reducing preparation time and audit risk. Pair this with our rental cashflow calculator and borrowing capacity calculator to model the after-tax impact of your next acquisition before you sign the contract.

If you haven't uploaded your settlement statements and quantity surveyor reports, log in and attach them to each property record. Your FY2024 Tax Pack will auto-populate Division 40, Division 43, and five-year borrowing deductions, ready for your accountant's review. For new users, explore pricing and start your 14-day trial—no credit card required until you're ready to lodge.