Ask any accountant which deduction property investors most often leave on the table and depreciation will be near the top of the list. It’s a genuine tax deduction for the wear and tear on a building and its fittings, and unlike most deductions, you don’t have to spend any money in the year to claim it. Here’s the plain-language guide to what you can claim and what it’s worth.
The Two Types of Depreciation
Property depreciation comes in two parts.
Capital works deductions cover the building itself: the structure, walls, roof and fixed items like built-in cabinetry. For residential buildings where construction started after 15 September 1987, you can generally claim 2.5 per cent of the construction cost each year for 40 years.
Plant and equipment covers removable or mechanical items, such as ovens, dishwashers, carpets, blinds, air conditioners and hot water systems. These are depreciated over each item’s effective life, which is usually much shorter than 40 years, so the deductions come faster.
The 2017 Rule That Changed Everything
This is where many investors get caught. For second-hand residential properties bought after 7:30pm on 9 May 2017, you generally can’t claim depreciation on plant and equipment that was already in the property when you bought it.
You can still claim capital works deductions on the building. You can claim plant and equipment you buy and install yourself. And brand-new properties, where nobody has lived or claimed before, are generally fully claimable. So the age and history of the property makes a big difference to how much depreciation is available.
How Much It Actually Saves
Depreciation reduces your taxable income, so what it’s worth depends on your tax rate.
A $10,000 depreciation deduction is worth about $3,200 to someone on the 30 per cent rate, and about $4,700 to someone on the top rate, once the Medicare levy is included. On a newer property, first-year claims can run into five figures.
Getting a Depreciation Schedule
To claim properly, most investors get a tax depreciation schedule prepared by a qualified quantity surveyor, who inspects the property and estimates construction costs and asset values where records don’t exist. The fee is itself tax deductible, and a schedule usually covers the property for its full claimable life.
If you’ve owned a property for a few years without claiming, it’s worth asking your tax agent about amending recent returns, since individuals can generally amend back two years.
The Catch When You Sell
Depreciation has a trade-off. Capital works deductions you’ve claimed reduce the property’s cost base, which increases your capital gain when you sell. For most investors the deduction is still worth it, since you get the benefit now and the discounted gain is taxed later, but it’s part of the full picture. Our guide to capital gains tax on investment property walks through how that works.
How the 2027 Changes Affect It
Depreciation is still claimable under the 2026-27 Budget reforms. What changes is where losses can be used. From 1 July 2027, for established residential properties bought after 7:30pm on 12 May 2026, net rental losses, including those created by depreciation, can only be offset against residential property income, with unused losses carried forward. Properties held before that date, and eligible new builds, keep the current rules.
That’s one reason quantity surveyors argue depreciation schedules are becoming more important, not less. More detail is on the ATO’s residential rental properties pages.
The Bottom Line
Property depreciation lets investors claim the wear and tear on the building and its fittings: capital works at 2.5 per cent a year on eligible buildings, and plant and equipment over each item’s life, subject to the 2017 rule on second-hand properties. A $10,000 claim can save between about $3,200 and $4,700 depending on your tax rate. Get a schedule, check whether you’ve missed past claims, and remember capital works deductions increase your gain when you sell. This is general information, not tax or financial advice.
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