Deductions for a rental property that isn't a holiday home

Your rental property must be rented out or available to rent on commercial terms to claim deductions for your expenses.

Last updated 21 May 2026

Claiming deductions for a holiday home

If your rental property is also your holiday home, see Holiday homes for information about what expenses you can and can't claim as deductions.

Claiming rental expenses as a deduction

For a property that isn't a holiday home, you can claim a deduction for expenses that relate to a rental property you own if the expenses are incurred in gaining or producing your assessable rental income. This means your property must be either:

used to produce assessable income, that is, rented to a tenant
held to produce assessable income on commercial terms.

There are also some rental expenses you can't claim regardless of whether the expenses are incurred in gaining or producing your assessable rental income.

Certain factors indicate whether a rental property is held to produce assessable income or isn't held to produce assessable income.

Depending on how you use your rental property, you may have to reduce deductions for some of your expenses.

For more information on the expenses you may be entitled to claim, see How to claim rental expenses and Common property expenses.

Rental property is held to produce assessable income

Your property is held to produce assessable income where your property is available for rent on commercial terms.

Factors that show a property is available for rent on commercial terms include:

it being advertised in ways that give it broad exposure to possible tenants
the rental terms, including the rate of rent, are similar to comparable properties in the same area
requests to rent the property being actively monitored.

If you rent a room in your home, your property will not be available for rent on commercial terms on days when the room is unoccupied during the income year.

Example: property not held to produce income for part of the year

Jemima owns a 2-bedroom apartment Sydney. To help pay off her mortgage, Jemima lists the second bedroom on a sharing economy platform. Jemima's second bedroom is advertised on the platform for the entire year of income.

During the income year (which is not a leap year), Jemima rents the second bedroom in her apartment for a total of 86 days.

Jemima's second bedroom isn't available for rent on commercial terms for the days it is unoccupied, that is 279 days (365 days - 86 days) of the income year.

Jemima can claim a deduction for the expenses directly incurred in earning rent from her second bedroom, that is, platform fees and cleaning expenses after a guest stay. However, the other expenses she incurs in earning her rental income will need to be apportioned using both the:

area-based method – the floor area of the second bedroom and 50% of the area of the common areas divided by the total floor area of the apartment
time-based method – days used for rent (86 days) divided by the number of days in the income year.

End of example

Example: property held to produce assessable income

Patrick owns a property in Hobart which he wants to rent out on a long term basis. He engages a real estate agent to find a tenant and manage the property for him.

Patrick's agent provides him with a list of similar rental properties in the area and the amount they currently rent for. After considering this and further discussions with his agent, Patrick decides on a weekly rent amount which reflects the market rate for his property. The property is then advertised for rent by the agent.

After 2 weeks on the market, Patrick has received no applications so his agent suggests he drops the weekly rent by $50. After dropping the rent, he receives several applications over the next week which are all passed onto Patrick to consider. Patrick selects a tenant who moves into the property 2 weeks later (5 weeks after it was first advertised for rent).

Patrick's rental property is available for rent on commercial terms during the 5 week period starting from when the property is listed with real estate agent and up to when the tenants move in.

End of example

For more information on how to apportion your expenses if your property isn't rented or held to produce assessable income, see Claim the right amount of expenses – methods of apportionment.

Rental property isn't held to produce assessable income

Factors that show a property isn't held to produce assessable income, that is, available for rent on commercial terms include:

it being advertised in ways that limit its exposure to potential tenants – for example, the property is only advertised
- at your workplace
- by word of mouth
- on restricted social media groups
- during periods when the likelihood of it being rented out is very low
the property is blocked out for private usage by you or your family and friends (at less than market rates) during periods of likely rental demand
the location, condition of the property, or accessibility of the property mean that it's unlikely tenants will seek to rent it
placing unreasonable or stringent conditions on renting out the property, when compared to similar properties, that reduce the likelihood of the property being rented out, for example
- setting the rent above the rate of comparable properties in the area
- requiring prospective tenants to provide references for short holiday stays as well as having conditions like ‘no children’
- making parts of the property inaccessible to tenants
requests to rent the property are not actively monitored or you refuse to rent out the property to interested people without adequate reasons.

These factors generally show you:

don't have a genuine intention to earn rental income from the property
may have other purposes, such as using it or reserving it for personal use.

Example: property not held to produce income

Jay owns a property in Adelaide. He lists it with a real estate agent for long term rent but against their advice, Jay sets the rent higher than the amount that similar properties in the area rent for.

Over the income year, Jay's real estate agent has received 2 applications to rent the property. Jay has rejected both applications. At various times during the income year, Jay's agent advises him to reduce the rent to attract more attention however Jay refuses.

Jay's property isn't held to produce income. He can't claim a deduction for any expenses incurred in respect of the property for the income year.

End of example

For more information, see:

TR 2026/1 Income tax: rental property income and deductions for individuals who are not in business
PCG 2026/2 Apportionment of rental property deductions – ATO compliance approach
PCG 2026/3 Application of section 26-50 of the Income Tax Assessment Act 1997 to holiday homes that you also rent out – ATO compliance approach.

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