Managing a rental property comes with many responsibilities, and one of the most important is understanding how to classify expenses for tax purposes. Misclassifying costs can lead to compliance issues and missed tax benefits, so it’s crucial to know the difference between repairs and maintenance and capital expenses.
Repairs and maintenance are expenses incurred to restore the property to its original condition or prevent deterioration. These costs are generally deductible in the year they occur because they relate directly to wear and tear or damage sustained while the property was rented out.
Examples of deductible repairs and maintenance include:
The key point is that these activities do not improve the property beyond its original state—they simply keep it in a tenantable condition.
Capital expenses are different. These costs provide a long-term benefit or improve the property beyond its original condition. They include:
Unlike repairs, capital expenses cannot be claimed immediately. Instead, they are written off over time through:
Correctly categorizing expenses ensures you:
Download our PDF checklist here.
For detailed guidance, visit the ATO’s resource on rental property expenses.
