Smart ways to approach tax deductions for investment loans

Investment property owners can claim a wide range of expenses against their rental income, and the loan you choose plays a significant role in how much tax you save each year.

The way you structure your investment loan affects what you can claim, how much cash flow you need to cover, and whether you're setting yourself up to benefit from future rule changes or getting caught by them. For anyone buying in Coomera right now, understanding which deductions still apply and which are being phased out makes a real difference to your after-tax return.

What You Can Claim on an Investment Loan

You can claim the interest charged on any loan used to purchase or improve an income-producing property. This applies whether you're on a variable or fixed rate, and whether you're paying interest only or principal and interest. The deduction is based on the interest component of your repayment, not the total repayment amount.

Consider someone who buys a townhouse in Coomera Waters as a rental property. They borrow using an interest only loan set at a variable rate. Every dollar of interest paid during the financial year is deductible against the rental income that property generates. If the loan is $450,000 and the rate sits at 6.2%, the annual interest would be roughly $27,900, all of which can reduce taxable rental income. That deduction alone can turn a modest rental yield into a position where the property costs very little out of pocket once the tax refund comes through.

Other claimable expenses include property management fees, council rates, water charges, building insurance, landlord insurance, repairs and maintenance, depreciation on fixtures and fittings, and body corporate fees if the property is in a complex. Stamp duty and legal fees are generally not immediately deductible but can be added to your cost base for capital gains purposes later.

How Recent Budget Changes Affect Coomera Investors

From 1 July 2027, negative gearing rules will change for established residential properties purchased after 12 May 2026. If your property costs more to hold than it earns in rent, you'll only be able to offset that loss against other residential property income or capital gains, not against your wage or salary.

This does not apply to properties bought before Budget night, and it does not apply to new builds purchased after that date. Coomera has a solid mix of both established homes and new developments, particularly around the northern growth corridor near Westfield Coomera and the train station precinct. If you're weighing up an older villa versus a newly completed townhouse, the tax treatment from mid-2027 onwards now tilts in favour of the new build.

Anyone who bought before 13 May 2026 keeps full negative gearing under the old rules. Losses can still be claimed against all income types. That grandfathering also applies to the capital gains tax discount, so the 50% reduction on gains remains in place for those properties even after the new indexed model rolls out.

Interest Only vs Principal and Interest for Tax Purposes

An interest only loan maximises your annual deduction because every cent of the repayment is claimable. A principal and interest loan reduces the deductible portion over time as more of each repayment goes toward paying down the balance.

For investors focused on cash flow and tax efficiency in the early years, interest only can make sense, particularly if rental income in the area remains strong. Coomera's vacancy rate has been low due to interstate migration and the appeal of affordable family housing near the M1 and rail link. That consistency in rental demand supports the logic of deferring principal repayments while you build equity through capital growth instead.

But interest only periods don't last forever. Most lenders offer them for five years, after which the loan reverts to principal and interest unless you apply to extend. That reversion increases your repayment and reduces your deduction, so it's worth planning for that shift rather than being surprised by it when it happens.

Splitting Your Loan Between Owner-Occupied and Investment Portions

If you're using equity from your home to fund a deposit on an investment property, the way you structure that borrowing determines what you can claim. Only the portion of the loan used to purchase or improve the investment property is deductible.

Say you own a home in Coomera and refinance to access $100,000 in equity. You use $80,000 as a deposit on a rental property in Upper Coomera and the remaining $20,000 to renovate your own kitchen. The interest on the $80,000 is deductible because it relates to the investment. The interest on the $20,000 is not, because it relates to your home. Keeping those portions in separate loan splits from the start makes record keeping straightforward and ensures you're not over-claiming or under-claiming when tax time rolls around.

Many brokers recommend setting up a split loan structure or maintaining separate facilities entirely to avoid any crossover. It also gives you the flexibility to fix one portion and leave the other variable, or to pay down the non-deductible debt faster while leaving the deductible debt in place.

Refinancing and How It Affects Your Deductions

When you refinance an investment loan, the interest on the new loan remains deductible as long as the funds are still being used for investment purposes. You can also claim costs like discharge fees, valuation fees, and application fees in the year they're incurred, or spread them over five years.

Refinancing becomes relevant when your original rate is no longer competitive, or when your circumstances change and you want to access equity for another purchase. Coomera property values have risen steadily over the past few years, driven by infrastructure projects like the second M1 exit and Coomera Town Centre expansion. That growth creates opportunities to leverage equity without selling, but only if your loan structure allows it and your borrowing capacity supports the additional debt.

If you refinance to access equity but use that equity for personal expenses, the interest on the additional borrowing is not deductible. The same principle applies as before. The use of funds determines the tax treatment, not the security the loan is held against.

Depreciation and Non-Loan Deductions Worth Noting

While loan interest is often the largest single deduction, depreciation can add thousands of dollars to your claim each year without requiring any actual cash outflow. Newer properties in Coomera, particularly those built in the last decade around Coomera Springs or Coomera Grand, will have higher depreciation schedules than older homes.

A quantity surveyor prepares a depreciation schedule that breaks down the decline in value of the building itself and the fixtures inside it. That report costs a few hundred dollars but can unlock deductions worth several thousand annually for the first ten to fifteen years. The cost of the report is also deductible.

Other ongoing deductions include property management fees, which typically run around 7% to 8% of the weekly rent in the area, plus a letting fee when a new tenant moves in. Landlord insurance, pest inspections, gardening and lawn care for standalone homes, and minor repairs like fixing a tap or repainting a damaged wall are all claimable in the year the expense occurs.

How to Structure Your Application for Maximum Flexibility

When you apply for an investment loan, lenders assess your income, existing debts, living expenses, and the rental income the property is expected to generate. Most lenders only count 80% of the projected rent to account for vacancy and maintenance periods.

Asking for features like an offset account, redraw facility, or the ability to make extra repayments without penalty gives you more control over your tax position as your situation changes. An offset account doesn't reduce the loan balance, so the full interest amount remains deductible, but it does reduce the interest you actually pay. That can be useful if you want to park savings temporarily without affecting your deductions.

Lenders also vary in how they assess rental income and how much they'll lend against investment properties. Some will go to 90% of the property value if you're willing to pay Lenders Mortgage Insurance, while others cap it at 80%. Your deposit size, the type of property, and the location all play a role. Coomera is generally viewed favourably by lenders due to its infrastructure, proximity to employment hubs, and demographic growth.

When to Speak to Someone About Your Setup

Tax law changes, lender policies shift, and your own financial position evolves. What made sense when you bought your first property may not suit your situation now, particularly if you're planning to buy a second investment or move from interest only to principal and interest.

Getting your loan structure right from the outset, and reviewing it periodically as rules change, means you're not leaving deductions on the table or paying more tax than you need to. If you're buying in Coomera or already own an investment property in the area and want to make sure your loan and claims are working in your favour, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions