Is LMI Tax Deductible on Investment Property in Australia?

Lenders Mortgage Insurance (LMI) can be one of the bigger costs when you’re buying an investment property—especially if you’re borrowing more than 80% of the property’s value. Understandably, many investors want to know: is LMI tax deductible on investment properties in Australia? The short answer is yes, but there are some rules around how and when you can claim it.

Let’s break it down.

What Is LMI and When Do You Pay It?

Lenders Mortgage Insurance is a one-off insurance premium that protects the lender—not you—if you default on your loan. It’s usually required if your deposit is less than 20% of the property’s purchase price, unless you are eligible for an LMI waiver.

The amount you pay in LMI depends on:

• The size of your deposit
• The value of the property
• The lender’s policy

LMI can be paid upfront or added to your loan (known as being “capitalised” into the mortgage).

Investment Properties and Tax Deductions

When you buy a property to rent out, you’re generally entitled to claim a wide range of tax deductions for expenses related to generating rental income. These include loan interest, property management fees, depreciation, and yes—LMI.

But, unlike some expenses you can claim in full in the same year, LMI is handled a little differently.

Is LMI Tax Deductible for Investment Properties?

Yes—LMI is tax deductible when it relates to an income-producing investment property.

However, the deduction must be spread evenly over five years, starting from the year the expense was incurred. This is because LMI is considered a borrowing cost and the Australian Tax Office (ATO) requires borrowing costs over $100 to be amortised over the shorter of:

• Five years, or
• The life of the loan

Example:

Let’s say your LMI premium is $5,000 and you use the loan to purchase a rental property. You’d be able to claim:

• $1,000 per year for 5 years as a tax deduction

If the loan term was only 3 years, you’d claim $1,666.67 each year instead.

How to Claim LMI on Your Tax Return

LMI falls under “borrowing expenses” on your tax return. These can include:

• LMI
• Loan application fees
• Title search fees
• Stamp duty on the mortgage (not the property)

To claim LMI:

1. Determine the amount you paid in LMI
2. Divide it evenly over 5 years
3. Include the yearly amount in your tax return under borrowing costs

If you capitalised the LMI into the loan, you can still claim the deduction—the important part is that it relates to an investment property.

What If You Sell or Refinance Early?

If you sell the property or refinance the loan within the five-year period, you can claim the remaining unclaimed portion of the LMI in your final tax return—so you don’t lose out.

For example:

• You paid $5,000 in LMI and have claimed $2,000 so far.
• If you sell in year 3, you can claim the remaining $3,000 in that year’s tax return.

Just make sure the loan was still being used for an income-generating purpose at the time of sale/refinance.

Is LMI Tax Deductible on Owner-Occupied Properties?

No. If you live in the property and it’s not being used to generate income, you can’t claim LMI or any other borrowing expenses as tax deductions.

If the property starts as your home and later becomes a rental, deductions may apply from the date it was rented out. In that case, you can only start claiming borrowing costs (including LMI) from the point it became an investment.

Other Loan-Related Costs You Can Claim

Alongside LMI, here are other borrowing costs investors may be able to claim:

• Loan establishment/application fees
• Title search fees
• Mortgage registration fees
• Stamp duty on mortgage (not the title transfer)

Like LMI, most of these need to be amortised over five years.

Speak to a Tax Professional for Personal Advice

Tax rules can be tricky—especially if:

• You refinance multiple times
• You use the property partly for personal use
• You have a split or offset loan

In these cases, a registered tax agent or accountant can help ensure you’re claiming correctly (and not missing anything). Keeping clear records and loan documentation makes it much easier at tax time.

Conclusion

Yes—Lenders Mortgage Insurance is tax deductible on investment properties in Australia. But rather than claiming the full amount upfront, you’ll need to spread the deduction over five years or the term of the loan, whichever is shorter.

If you sell or refinance early, you can claim any remaining unclaimed amount in that financial year—just make sure the loan was still investment-related.

By understanding how LMI and other borrowing costs work, you can make smarter decisions when investing and make the most of your tax return.