6 Facts Every Property Investor Should Know About Claiming Tax Depreciation on Their Rental Property

Fact 1 – Tax depreciation is typically one of the largest deductions available to property investors

Depreciation is a tax deduction claimable for the ageing and wearing out of your building and assets over time. It is a paper deduction, meaning it is calculated and added to your tax return each year.

Below are average deductions claimable for different property types.

You can access the extra cash and improve your cash flow sooner by using a tax variation form to reduce the tax deducted from your wages.

Example

Chad purchased a brand new unit for $715,000 in July, 2024. Chad earns as salary $85,000 per annum, and he has paid $18,092 tax through his employer. Chad’s rental income is $33,800, making his total income $118,800.

Chad’s tax deductions excluding depreciation equal $25,000 (these deductions include interest expenses, property management, maintenance, and other property and personal expenses).

Chad’s taxable income is now $93,800 and his tax payable for the year is $20,952. In this situation, Chad owes the tax office $2,860.

After Claiming Depreciation

In addition to the expenses Chad is already claiming above, he is eligible to claim depreciation for the ageing and wearing out of his building and assets (rental property depreciation).

The tax depreciation claimable on Chad’s unit for the 2025 financial year totals $14,944.

Chad’s tax deductions now equal $25,000 + $500 (cost of Depreciation Schedule) + $14,944 (Depreciation Claims) = $40,444.

Chad’s new taxable income is now $78,356 and his total annual tax payable is now $15,932. Chad has already paid $18,092 in tax via his employer and should now expect a refund of $2,160.

Fact 2 – Brand new properties generate the biggest tax depreciation deductions

Brand new properties typically generate the most tax deductions as their construction costs are the highest and the building and assets are still at the beginning of their effective lives.

Owners of brand new investment properties have the benefits of claiming depreciation on both the building and all of the included assets in their investment property. Purchasers of second hand properties can claim depreciation on the building but not on the second hand assets.

Even where the construction cost of a new build is known, a quantity surveyor will be required to separate and itemise the costs and depreciation deductions of the building (Division 43) from the included assets (Division 40) and ensure the deductions are maximised in the most appropriate years for the owner.

Fact 3 – Old properties can still generate big tax deductions

Whilst brand new properties typically generate the best tax depreciation deductions, many property investors and their advisers don’t realise the value when it comes to claiming for depreciation of older properties. The common myth is that if the property was built at least 40 years ago, there will be no value left to depreciate and claim..

The fact is, most older properties have been improved or extended since original construction. The original building may not have claims left in it, but any structural work completed over the last 30 years will qualify.

When you purchase an investment property that is not brand new, any capital improvements or additions completed on the property prior to your purchase will be considered for depreciation purposes. It doesn’t matter if you don’t know when the work was done or how much it cost. Our experts are qualified to estimate those details and ensure your deductions are maximised.

Not all improvements and additions are obvious to the untrained eye. Electrical re-wiring, re-plumbing, roof replacements, window replacements and garages are improvements and additions that are often not recognised by property investors, and yet are often eligible for depreciation claims.

If the property was purchased prior to 9th May, 2017 assets within the property that have been updated/replaced will qualify for depreciation deductions. Additionally, for these properties the Division 40 (plant and equipment) assets are assigned new values and effective lives at the date of purchase. The depreciation of these assets alone is often enough to make a report worthwhile.

Property investors who have purchased established investment properties (properties that are not brand new) since 9th May 2017 are unable to claim annual depreciation on the second-hand assets they acquire (assets like the stove, hot water system etc). All is not lost however, the depreciation of those assets can be claimed as an expense when calculating Capital Gains Tax and help to reduce tax payable in that year.

Fact 4 – You can back-claim for missed years

If you have held your investment property for a number of years but didn’t realise you could be claiming depreciation on it, you have effectively over-paid your taxes and you are entitled to claim the over-payment back.

How many years you can back-claim will depend on your previous tax lodgments, as well as your personal circumstances. Your accountant will be able to provide more detailed advice for your own situation.

A quick case study as an example…

James purchased a 2 year old investment property in 2022. James was not aware at the time that he could benefit from claiming tax depreciation.

James completed a minor renovation and added some new assets to the property. James had Capital Claims Tax Depreciation prepare a tax depreciation schedule for him in May 2025.

A Capital Claims Tax Depreciation schedule starts at the time of purchase, which in James’s case was March 2022. James holds his investment property as an individual and would like to back-claim depreciation in previous years that he missed out.

See below for James’s total depreciation deductions for each financial year:

Based on the above example, James is able to request amendments for his 2023 and 2024 tax returns, as well as claim deductions in his 2025 tax return and subsequent years going forward.

Total deductions claimable across the 3 years equals $25,070.00. Unfortunately, the $5,013.00 that would have been claimable for the 2022 financial year have been lost. On the upside, Capital Claims Tax Depreciation held off immediate write-off and low-cost and low-value pooling provisions to minimise the first year losses and improve results in subsequent years.

Fact 5 – The benefits of claiming tax depreciation still outweigh the impact on CGT

Some property investors are concerned that claiming depreciation now will increase the Capital Gains Tax (CGT) payable when they sell their property. However, the benefits of immediate tax deductions often outweigh the potential future tax implications. However, consider the following:

It is true that a portion of the depreciation claimed while holding an investment property is deducted from the cost base when calculating a capital gain. However, consider the following:

· When you hold a property for more than 12 months, you receive a 50% discount on your CGT liability. Combined with the other potential discounts or exemptions, the impact is minimised even further.

· The value of the dollar you are banking today is greater than the value of the dollar you may save at some time in the future. As goods and services increase in cost over time, the purchasing power of your extra dollars today is far greater than it will be in the future.

· The opportunity cost of delaying those savings could end up costing you greatly. Having the savings tied up in the property, to possibly realise at some time in the future means you are unable to use them to pay down debt, reinvest or manage expenses in the meantime.

· Only depreciation claimed under Division 43 (building and structural improvements) is deducted from your cost base. Depreciation on Division 40 assets is treated separately.

· Properties purchased and available for income-producing purposes after 7:30 pm on May 9, 2017, are not able to make annual claims for any depreciation on ‘second-hand’ Division 40 assets in their property. Instead, when the property is sold, the cumulative value of that depreciation is also claimable as an expense, reducing the profit on the sale as well as the potential CGT payable.

Example

Please note these are simplified scenarios to demonstrate the points above only – always seek advice from your accountant.

A.

In 2021, Joe purchased a brand new investment property for $500,000. This property consistently generated income for him. Over the first five years of ownership, Joe accumulated approximately $34,000 in depreciation: $20,000 from Division 43 (capital works) and $14,000 from Division 40 (plant and equipment). By claiming these deductions annually, Joe received an additional $12,750 in cash over that period, thanks to his tax rate.

In 2025, Joe decided to sell the investment property for $700,000. Excluding other variables, this sale resulted in a $200,000 profit. However, considering the depreciation claimed, the profit adjusted to $220,000, as the purchase price (or cost base) was reduced by the depreciation claimed under Division 43, thereby increasing the profit.

Since Joe held the property for more than 12 months, he qualified for a 50% discount on Capital Gains Tax (CGT), making the taxable amount $110,000. At his tax rate, this meant a tax liability of $41,250.

If Joe had not claimed depreciation over the five years, his tax liability would have been $37,500. Thus, his tax liability at sale increased by $3,750 due to the depreciation claims. However, Joe benefited from an additional $12,750 over the five years, which he used to pay down some debt and make improvements to the property, ultimately increasing its rental yield.

B.

In June 2024, Jane purchased an existing property for $500,000. This property consistently generated income for her. Over the first five years of ownership, Jane accumulated approximately $34,000 in depreciation: $20,000 from Division 43 (capital works) and $14,000 from Division 40 (plant and equipment). By claiming these deductions annually, Jane received an additional $7,500 in cash over that period, thanks to her tax rate.

In 2029, Jane decided to sell the investment property for $700,000. Excluding other variables, this sale resulted in a $200,000 profit. However, considering the tax depreciation claimed, the profit adjusted to $206,000. This adjustment occurred because the purchase price (or cost base) was reduced by the depreciation claimed under Division 43, increasing the profit to $220,000, and then the Division 40 depreciation expense of $14,000 was applied.

Since Jane held the property for more than 12 months, she qualified for a 50% discount on Capital Gains Tax (CGT), making the taxable amount $103,000. At her tax rate, this meant a tax liability of $38,625.

Had Jane not claimed depreciation over the five years, her tax liability would have been $37,500. By claiming depreciation, her tax bill at the time of sale increased by $1,125. However, she gained an extra $7,500 in tax deductions over those five years—money she used to reduce debt and jump-start other investments.

Fact 6 – Cheap reports will cost you more in missed deductions

A comprehensive tax depreciation schedule will ensure all depreciable assets are accurately identified and valued, leveraging appropriate legislation to maximise deductions for the property investor.

It’s important to choose a reputable provider whose tax depreciation schedules have a proven track record of compliance and reliability, especially in the event of an audit. High-quality tax depreciation schedules, like those prepared by us, will include:

40 year projection

Our report projects how much you can claim in tax depreciation each year for the next 40 years—one report that lasts the life of the property.

Diminishing value and prime cost methodology

Reporting of both methods to allow the property investor to tailor their strategy.

Low cost and low value pooling

Property investors can claim aggressively in the earlier years of the investment when costs of holding are typically higher.

Pre-purchase renovations

Estimation of any works completed over time, including pre and post-purchase to ensure deductions are maximised.

Inclusion of preliminaries and consultants fees

To ensure all assets are attributed with maximum, legitimate values, these expenses have been accurately apportioned within the schedule.

Disposal of assets – ‘scrapping’

To maximise property investor claims for renovations, scrapped items are accurately valued and fully written off at 100% in the year of disposal.

Full estimation of construction and asset costs

When costings are not available, our team is qualified to accurately estimate the complete costs.

Lifetime of free updates for minor works

We will update reports free of charge when property investors replace/install new assets and provide evidence of the costs of those assets.

Would you like to discuss your investment property?

Contact our friendly team to discuss your property and find out what depreciation deductions are available to you.  We provide free, all inclusive quotes and estimates of deductions up-front so you can feel confident before proceeding.  Get in touch today on 1300 922 220.