Borrowing Expenses You Can Claim on Your Investment Property in 2026

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

When you took out a loan to buy your investment property, the bank did not just hand over the money for free. You paid establishment fees, possibly lenders mortgage insurance, valuation costs, and a handful of other charges before you even had the keys. Most landlords know that interest is deductible, but those upfront loan costs are deductible too, and many people either forget them entirely or claim them incorrectly.

Here is how borrowing expenses work under Australian tax law, and how to make sure you are not leaving money on the table.

What Counts as a Borrowing Expense?

Borrowing expenses are costs you incur in arranging a loan to purchase or refinance your investment property. The ATO recognises a specific list:

• Loan establishment fees charged by the lender to set up the loan
• Lenders mortgage insurance (LMI), the insurance your lender requires if you borrow more than 80% of the property's value (effectively when your loan-to-value ratio exceeds 80%)
• Title search fees paid by the lender as part of their due diligence
• Mortgage registration fees charged by the state government to register the mortgage on the title
• Valuation fees required by the lender to approve the loan
• Legal fees charged by the lender's solicitor (not your own conveyancing costs, which are acquisition costs with different treatment)
• Mortgage broker fees, if charged separately for arranging the loan

Stamp duty on the property purchase and conveyancing fees you paid are not borrowing expenses. They are acquisition costs that go to your cost base for capital gains tax purposes. If you are still in the buying phase, the purchase cost calculator can help you estimate total upfront costs, including stamp duty, LMI, and the borrowing expenses covered here.

For a broader look at what falls where, see our guide to landlord expenses you can claim.

The 5-Year Spreading Rule

This is where many landlords get tripped up. Borrowing expenses are not simply claimed in full in the year you take out the loan. They follow a specific rule:

• If your total borrowing expenses for a loan are $100 or less, you can claim the full amount in the year you incur them.
• If your total borrowing expenses are more than $100, you must spread the deduction over five years or the term of the loan, whichever is shorter.

In practice, most investment loans attract more than $100 in borrowing costs (LMI alone is often several thousand dollars), so the five-year rule applies to almost everyone.

The deduction is spread evenly across five income years, with the first and last years pro-rated based on how many days in those years the loan was in place. If you took out the loan on 1 October 2024, your first deduction covers only the portion of the 2024–25 financial year from that date to 30 June 2025.

How to Calculate the Deduction

The formula is straightforward once you have the numbers:

1. Add up all your borrowing expenses for the loan.
2. Divide by 5 (or by the loan term in years if that is shorter than 5).
3. For the first and last year, multiply by the number of days the loan was active in that financial year, divided by 365.

Worked example. You settle on an investment property on 1 January 2025. Your borrowing expenses total $4,500: a $1,200 establishment fee, $2,800 in LMI, and $500 in mortgage registration and valuation fees.

• Annual deduction: $4,500 ÷ 5 = $900 per year
• 2024–25 deduction: $900 × (181 days ÷ 365) = $446
• 2025–26 through 2028–29: $900 per year
• 2029–30 deduction: $900 × (184 days ÷ 365) = $454

Confirm the precise figures with your accountant. The pro-rating is straightforward but easy to miscalculate if you are not careful. Borrowing expenses are one piece of the overall picture. To see how your total deductions (including interest, depreciation, and other costs) stack up against your rental income, use the negative gearing calculator.

What Happens When You Refinance?

If you refinance your investment loan, you start a new five-year spreading period for the borrowing expenses on the new loan. But you also get to claim any unclaimed balance from the original loan in the year you refinance.

Say you were two years into claiming borrowing expenses from your first loan, with $600 still to go. When you refinance, you claim that $600 in full in the year of refinancing, and then begin spreading the new loan's borrowing expenses from that point. Keep good records of your original loan costs and what you have already claimed. Your accountant will need them.

Loan Redraws and Offset Accounts

These two features are worth understanding clearly, because they affect whether the interest you pay stays fully deductible.

Offset accounts hold your savings in an account linked to your investment loan. The balance offsets the amount of interest calculated each day, so you pay less interest without actually reducing the loan principal. Crucially, the money in the offset account retains its own character. You have not mixed personal funds into the loan itself, so the loan remains fully deductible. If you withdraw funds from the offset for personal use, that is simply drawing on your own savings.

Redraws are different. When you redraw on an investment loan, you are increasing the loan balance again. If you redraw for investment purposes (say, to fund deductible repairs on the property), the interest on that additional amount is deductible. But if you redraw for personal use (a holiday, a car, household expenses), the interest on that portion is not deductible. The ATO does not care that the loan was originally for investment; it cares about what the redrawn money was actually used for.

Mixed-use redraws create a split loan situation that needs careful apportionment, ideally tracked from the moment you redraw rather than reconstructed later. This is one area where clean records really pay off. If you want to see how your current loan structure affects your monthly repayments, the mortgage repayment calculator lets you compare principal and interest versus interest-only scenarios.

Keeping Records of Borrowing Expenses

The ATO expects you to keep records for five years after lodging the return in which a deduction is claimed. For borrowing expenses spread across five years, that means keeping your original loan documentation and associated invoices for close to a decade.

What to keep:

• The loan contract and any formal fee schedules from the lender
• The LMI certificate or policy confirmation showing the premium charged
• Invoices for any valuation or legal fees charged as part of the loan
• A record of what you have claimed in each year, so the spreading calculation is clear if your accountant or the ATO ever asks

For a full picture of the records every landlord should maintain, our complete guide to rental property tax deductions in Australia covers the ATO's requirements across all expense categories.

Staying Organised Year to Year

Borrowing expenses are unusual because the deduction runs silently in the background for five years after you set it up. It is easy to forget about in year three or four, especially if you have changed accountants or switched lending products. Keeping a simple note of the total, the start date, and what you have claimed each year means you never lose track of what is still owed to you.

propkt lets you record your borrowing expenses alongside your other property costs, categorised and dated correctly, so your accountant has everything they need when it is time to lodge. Track your expenses alongside your income and deductions in one place, and arrive at tax time with records that are actually in order.

Already tracking your interest and rates? Make sure your borrowing expenses are in there too. It is money you have already spent, and it is yours to claim.