When you own a rental property, you're likely to have maintenance and administrative costs. You can claim all or some of these costs as a deduction against your rental income. This reduces the tax you pay on the rental income you receive.
You can claim deductions up to the amount of rental income you earn in a year, including income from the sale of a property. This is called ring-fencing. Because rental deductions can be claimed only against rental income, you can not offset excess deductions against other income such as salary or wages.
When you have excess deductions, you must carry them forward from year to year and deduct them when your residential property makes income.
Check if the residential property deduction rules apply to you
The residential property deduction rules will apply if you own rental property in the following capacity:
- individual owner
- partner in a partnership
- shareholder in a look-through company
- shareholder in a close company
- trustee of trust.
Property the residential property deduction rules apply to
The residential property deduction rules apply to all your residential land including your overseas residential property.
From the 2022 income year residential land includes property used for short-stay accommodation if the dwelling is not the owner’s main home. This includes business premises rented out through a digital platform. For example, Airbnb, Bookabach, and other holiday homes.
Property the rules do not apply to
The residential property deduction rules do not apply to:
- your main home. If you have more than 1 home, this is the home you have the greatest connection with.
- property that comes into the mixed-use asset rules (for example holiday homes)
- property that will be taxed on sale, regardless of when it’s sold. Unless the property was acquired for a land-related business, you must let us know for it to be excluded from the residential property deduction rules.
- property used mainly as business premises
- property owned by a company other than a close company
- employee accommodation
- property owned by Government enterprises.
Choosing a basis to work out residential property deductions
To get started, choose a basis to work out your deductions. You can use the portfolio basis, the individual property basis, or both options together if you have more than 1 property.
The key difference between the options is with the:
- portfolio basis you can use the deductions for a property against the income from another property in the portfolio
- individual property basis you cannot use the deductions for 1 property against the income from another property.
We recommend that you talk to a tax professional about which approach is best for you.
The 2023 Residential property deduction worksheets - IR1226 are only for 2023. For the years 2020-2022 use the 2020 IR1226 worksheets.
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