Depreciation (Rental Property)
Tax deductions for the declining value of a rental property's building structure and plant & equipment (fixtures and fittings).
Depreciation for rental properties allows investors to claim tax deductions for the wear and tear (decline in value) of the property's building structure (capital works deductions) and plant and equipment (fixtures and fittings like carpets, blinds, hot water systems, and appliances). These are non-cash deductions — you claim them without spending additional money — making depreciation one of the most valuable tax benefits of property investment.
Plant and equipment items are depreciated at rates determined by the ATO (using effective life estimates). Common items include carpet (8-year effective life), hot water systems (12 years), air conditioning (10 years), and ovens (12 years). However, since 1 July 2017, investors in second-hand residential properties can no longer claim depreciation on existing plant and equipment — this change applies to items that were in the property at the time of purchase. You can still claim depreciation on new items you install.
To maximise depreciation claims, investors typically engage a qualified quantity surveyor to prepare a tax depreciation schedule. This is a detailed report listing all depreciable items and their values, and the surveyor's fee (typically $600–$900) is tax-deductible. A good depreciation schedule can identify $5,000–$15,000 or more in deductions per year for a new or near-new property, significantly improving after-tax cash flow.
How it works
Rental property depreciation lets you claim two separate types of decline-in-value deductions: capital works deductions for the building structure itself, and plant and equipment depreciation for fixtures and fittings like carpets, blinds, hot water systems, and appliances. Both are non-cash deductions — you claim them against your rental income without spending any additional money in the year you claim them, which is what makes depreciation one of the most valuable tax benefits available to property investors on an ongoing basis.
In practice, most investors engage a quantity surveyor to prepare a tax depreciation schedule, a detailed report itemising every depreciable asset in the property along with its ATO-determined effective life and applicable depreciation rate. Common items include carpet (8-year effective life), hot water systems (12 years), air conditioning (10 years), and ovens (12 years). The schedule's one-off fee, typically $600–$900, is itself tax-deductible, and a good schedule can identify $5,000–$15,000 or more in deductions per year on a new or near-new property.
The biggest trap is the 1 July 2017 rule change: investors who buy a second-hand residential property can no longer claim depreciation on existing plant and equipment that was already in the property at purchase — only on new items they subsequently install themselves. Capital works deductions were not affected by that change and remain claimable by any owner regardless of whether they are the first or a later owner. Confusing the two categories, or assuming an older property has no deductions left, is a common way investors under-claim.
Example: a new build's first-year depreciation schedule
An investor buys a newly built rental property and pays a quantity surveyor $750 to prepare a tax depreciation schedule.
The schedule identifies $9,000 in combined capital works and plant and equipment deductions for the first year of ownership. That $9,000 directly reduces the property's taxable rental income for the year — a non-cash deduction, since the only money actually spent was the surveyor's one-off $750 fee.
Calculate it yourself
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Capital Works Deduction
A deduction for the construction cost of a building or structural improvement, typically claimed at 2.5% per year over 40 years.
Negative Gearing
When the costs of owning an investment property (interest, expenses) exceed the rental income, creating a tax-deductible loss.
Rental Income
Income received from renting out a property, which must be declared as assessable income in your tax return.
Cost Base
The total cost of acquiring and holding an asset, used to calculate the capital gain or loss on disposal.
Instant Asset Write-Off
Allows eligible businesses to immediately deduct the full cost of eligible depreciating assets, rather than depreciating over time.