Depreciation can be one of the more valuable investment property deductions because it is based on the gradual decline in value of the building and eligible assets, not on money you have spent during the current financial year. As the property and fixtures age, the ATO allows eligible investors to claim a portion of that decline against their taxable income.

For many property investors, the potential deduction is higher than expected. A newer apartment with modern fittings, an older house with renovations, or a commercial property with substantial plant and equipment can all produce very different results. The amount depends on the property’s age, construction cost, improvement history, asset inclusions and the accuracy of the depreciation schedule.

TL;DR

  • Depreciation on investment property is claimed through Division 43 capital works and Division 40 plant and equipment.
  • How much you can claim depends on age, construction cost, renovations, eligible assets and income-producing use.
  • Newer properties often produce stronger first-year deductions, but older and renovated properties still hold real value.
  • An AIQS-certified quantity surveyor prepares the ATO-compliant schedule your accountant applies at tax time.

What Are Depreciation Deductions?

Depreciation deductions recognise that buildings and assets lose value over time. Unlike loan interest or property management fees, depreciation is not a cash expense you pay in the year you claim it. It reflects the wear and tear on eligible building works and assets within an income-producing property.

It applies to rental properties, commercial buildings, industrial facilities and other income-producing assets. Deductions are documented in a tax depreciation schedule, which your accountant uses when preparing your return. What follows qualifies under the ATO’s rules for depreciating assets in rental properties, covering when and how eligible assets can be claimed.

Division 40 vs Division 43 Explained Simply

Division 43 capital works relates to the building structure, including walls, floors, roofs, extensions and other permanently fixed elements. Because these parts of the property last for many years, deductions are usually spread over a longer period. Renovations and extensions often fall into this category too.

Division 40 plant and equipment covers removable or mechanical assets, such as appliances, carpets, blinds, air-conditioning, and hot-water systems. These items usually wear out faster, so deductions are often higher in the earlier years.

For residential investors, one rule is especially important. Since 9 May 2017, the ATO has limited Division 40 deductions for second-hand plant and equipment, meaning you can generally only claim assets you installed yourself. Capital works deductions are unaffected, and renovations can still create deductible value over time.

How Much Depreciation Can You Typically Claim?

There is no single depreciation figure that applies to every investment property. The amount depends on the property’s age, construction cost, included assets, renovation history and how accurately the depreciation schedule is prepared.

As a broad guide, newer residential properties may produce deductions in the following ranges:

  • 1-bedroom unit, approx. $300,000 build cost: $7,500 to $12,000 in the first year, or $37,500 to $60,000 over five years.
  • 2-bedroom unit, approx. $400,000 build cost: $10,000 to $16,000 in the first year, or $50,000 to $80,000 over five years.
  • 3-bedroom house, approx. $500,000 build cost: $12,500 to $20,000 in the first year, or $62,500 to $100,000 over five years.
  • 4-bedroom house, approx. $600,000 build cost: $15,000 to $24,000 in the first year, or $75,000 to $120,000 over five years.

These figures are indicative only. Actual deductions depend on construction history, ownership, income-producing use, renovation details and ATO rules at the time of assessment. For a newly purchased, recently renovated or growing portfolio, a tailored assessment of residential property depreciation will always give a more accurate picture than these ranges alone.

What Affects How Much Depreciation You Can Claim?

Depreciation claims can vary more than many investors expect. Two properties may look similar from the outside, but when you consider the build date, construction history, renovations, and property assets, the numbers can tell a very different story.

Build Date and Construction Cost

Newer properties often have higher depreciation potential because more of the original construction cost may still be claimable. Older properties can still produce deductions, especially where renovations, extensions or upgrades have been completed.

Construction cost also matters. A higher build value usually means more capital works value is available, and where original records are missing, a qualified quantity surveyor can estimate eligible costs using recognised methods.

Renovations, Assets and Report Quality

Renovations can make a significant difference to the final claim. This may include work completed by the current owner and, in some cases, improvements completed by a previous owner. A quantity surveyor can assess what is visible at the property and estimate eligible construction costs, even when paperwork is incomplete.

The assets inside the property also matter. Items such as carpets, appliances, blinds, air conditioning and hot water systems each have their own depreciation treatment under the ATO’s effective life guidelines. Their value depends on the type of asset, its age and whether the second-hand plant and equipment rules apply.

Report quality matters too. A detailed report will identify, classify and apply deductions more accurately than a basic or incomplete schedule. That accuracy gives accountants clearer figures and reduces the risk of missed deductions.

Property Type

Property type can have a major influence on the deductions available. Houses, townhouses, apartments and units can generate both capital works and plant and equipment deductions where eligible. Renovated properties are often worth reviewing, even if the current owner did not complete the work.

Commercial and industrial properties often offer broader depreciation opportunities due to their fit-outs, specialised plant and equipment, and varied construction works. Offices, warehouses, retail spaces and industrial assets can all produce meaningful commercial depreciation deductions when assessed correctly, though they usually require more detailed reporting.

Older properties should not be ruled out without proper assessment. Capital works built or renovated after 1985 may still qualify for Division 43 deductions, and later improvements can continue to add value to a depreciation schedule.

Why an AIQS-Certified Quantity Surveyor Matters

The accuracy of a depreciation claim depends heavily on how well the schedule is prepared. A quantity surveyor can identify eligible deductions, correctly classify assets, and estimate construction costs where original records no longer exist. This is specialist knowledge that sits outside standard accounting training.

AIQS certification means the quantity surveyor meets recognised professional standards. ATO-aligned reporting requires technical rigour that informal estimates cannot match, and a lower-standard report can miss eligible deductions or misclassify assets.

A few common errors are worth avoiding: assuming older properties have no depreciation value, using a generic calculator instead of a property-specific schedule, forgetting renovations completed by a previous owner, or failing to update the schedule after major improvements. Getting these right means your accountant has clearer figures and you reduce the risk of ATO queries.

How ACP Helps Investors Claim Depreciation with Confidence

Depreciation claims are only useful when they are accurate, compliant and easy for an accountant to apply. ACP starts with a thorough property assessment, reviewing construction history, identifying eligible assets and classifying everything against ATO depreciation categories. The finished report gives your accountant clear, year-by-year figures ready to apply immediately.

ACP supports residential investment properties, commercial properties and mixed-use assets. Reports are prepared by AIQS-certified quantity surveyors with Tax Practitioners Board registration and 35 years of Australian property experience. Pricing is fixed-fee with a money-back guarantee, and every report is backed by the quality assurance of our TAXBACK1000 system before it leaves the office.

To understand how much depreciation you may be able to claim, ACP can prepare your depreciation schedule using ATO-compliant methods tailored to your property.

How to Get Your Depreciation Claim Right

Depreciation on investment property is not a single figure. How much you can claim depends on what was built, when, what has happened to the property since, and how carefully the schedule is prepared. Two properties that look identical on paper can produce very different deductions.

Understanding what drives the claim, which category each deduction falls into, and how renovation history affects eligibility all make a difference to the final figure. A property-specific schedule from a qualified quantity surveyor is the most reliable way to find out where you actually stand.

FAQs

Can renovations increase depreciation deductions?

Renovations can affect depreciation deductions where the work qualifies as eligible capital works or includes claimable plant and equipment. This can include work completed by a previous owner, even when invoices are unavailable.

How often should a depreciation schedule be updated?

A depreciation schedule may need updating after major renovations, extensions, asset replacements or changes in how the property is used. It is also worth reviewing whether the existing schedule no longer accurately reflects the property.

Can commercial properties claim depreciation differently?

Commercial properties often involve different depreciation considerations because they may include fit-outs, specialised plant, equipment and varied building works. Offices, warehouses, retail spaces and industrial properties can require more detailed asset classification than standard residential properties.

Can I claim depreciation if I only rent out part of my property?

Depreciation may still apply where part of a property is used to produce income, but the claim usually needs to reflect the income-producing portion. This can be relevant for granny flats, dual-occupancy homes, home offices or mixed-use properties.

What records do I need for a depreciation assessment?

Useful records may include purchase details, settlement information, building plans, renovation invoices, asset lists and any existing depreciation schedules. A full record set is helpful, but where construction or renovation costs are missing, a qualified quantity surveyor may be able to estimate eligible amounts.