When it comes to maximising returns from your rental property, understanding property depreciation for investors is key. Depreciation is a powerful tax benefit that allows investors to claim the wear and tear of their property over time—reducing taxable income and boosting long-term profitability.
So how does it work, and how can you make sure you’re not leaving money on the table?
What is property depreciation?
Property depreciation refers to the gradual decline in value of a building and its assets due to age, wear, and usage. The Australian Taxation Office (ATO) recognises this loss in value and allows eligible investors to claim it as a tax deduction.
By doing so, you can recover part of your investment over time and improve your cash flow without spending a cent more.
There are two main types of depreciation relevant to residential investment properties:
- Capital works deductions: These apply to the structure of the building—walls, floors, ceilings, and built-in elements. Capital works depreciation generally applies to properties built after 1987.
Plant and equipment deductions: These cover easily removable assets like appliances, carpet, blinds, air conditioning units, and more. Each item has its own effective life, and depreciation is calculated accordingly.
How to claim depreciation on investment property
To claim property depreciation for investors, you’ll need to:
- Determine which parts of your property are eligible
- Apply the appropriate depreciation rates
- Ensure your claims comply with ATO regulations
This process can be complex and is often best handled with professional help to avoid errors or missed opportunities.
The value of a depreciation schedule
Most property investors use a depreciation schedule—a detailed report prepared by a qualified quantity surveyor. This report lists all eligible items in your property along with their depreciable value and lifespan.
Having a depreciation schedule means:
- You (or your accountant) can confidently claim the correct deductions each year
- You stay compliant with ATO guidelines
- You save time and avoid overlooking valuable deductions
Best of all, a depreciation schedule is a one-time investment that can provide value for years.
Why it matters
Over time, claiming depreciation can result in thousands of dollars in tax savings—money that stays in your pocket and boosts the overall return on your investment. Especially for newer properties or homes with quality fixtures and fittings, depreciation is one of the most effective ways to optimise rental income.
Final thoughts
Property depreciation for investors isn’t just a technical tax detail—it’s a major opportunity. By understanding how it works and seeking expert support where needed, you can ensure your investment strategy is working harder for you.
Whether you’re new to property investment or expanding your portfolio, don’t overlook the impact depreciation can have on your bottom line.
Disclaimer: This article is general in nature and does not constitute financial or legal advice. Please speak to a qualified financial advisor or accountant before making investment decisions.