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.