Property Depreciation: The Tax Deduction Most Investors Miss
Depreciation can add thousands to your annual tax deductions — but many investors either don't claim it or claim it incorrectly.
Of all the tax deductions available to property investors, depreciation is the one most commonly overlooked. Unlike expenses that require you to spend money, depreciation is a non-cash deduction — you claim it without any out-of-pocket cost. For many investors, it adds $5,000–$15,000 in annual deductions that they're simply not claiming.
What Is Property Depreciation?
Depreciation is the decline in value of a building and its fixtures over time. The Australian Tax Office allows property investors to claim this decline as a tax deduction — even though no money actually leaves your pocket.
There are two types of depreciation claims for investment properties:
Covers the structural elements of the building — walls, floors, roof, windows. Claimed at 2.5% per year over 40 years. Applies to residential properties built after September 1987.
Covers removable assets — carpets, blinds, appliances, hot water systems. Each item has its own effective life and depreciation rate. For properties purchased after May 2017, only new items can be claimed.
How Much Can You Claim?
The amount varies significantly based on the property's age, construction type, and the quality of fixtures. As a rough guide:
Typically $10,000–$20,000+ in year one. Maximum depreciation available.
Typically $5,000–$12,000 per year. Still significant deductions available.
Typically $2,000–$6,000 per year. Mainly plant & equipment for post-2017 purchases.
A 3-year-old house purchased for $700,000 might have $12,000 in annual depreciation deductions. If you're in the 37% tax bracket, that's $4,440 back in your pocket — without spending a dollar.
Do You Need a Depreciation Schedule?
Yes. To claim depreciation, you need a tax depreciation schedule prepared by a qualified quantity surveyor. The ATO requires this — you can't simply estimate the amounts yourself.
- • Year-by-year depreciation amounts
- • Separate Division 40 and Division 43 claims
- • Both diminishing value and prime cost methods
- • Covers the remaining life of the property
- • Typically $400–$700 for a residential property
- • The fee itself is tax-deductible
- • Usually pays for itself in the first year of claims
- • Valid for the life of your ownership
Common Mistakes
- ✕Not getting a schedule at all: The most common mistake. Many investors simply don't know depreciation is claimable.
- ✕Assuming old properties don't qualify: Even older properties often have claimable plant and equipment items.
- ✕Forgetting to update after renovations: If you renovate, you can claim depreciation on the new items. Get an updated schedule.
Disclaimer: This article is for educational purposes only and does not constitute tax advice. Speak with a qualified accountant before making claims.
Module 3 covers depreciation, negative gearing, CGT, and all financial aspects of property investment.