Key Takeaways for Property Investors:
- Interest rate cuts in 2025 are reigniting investor confidence in the property market.
- Feasibility analysis is essential — include depreciation to assess true after-tax returns.
- Depreciation (Division 43 and Division 40) can significantly improve cash flow and ROI.
- Example for investor earning $150,000 p.a. – saves thousands each year through depreciation claims.
- Depreciation claims in the first 5 years can exceed $50,000 on new builds.
- Most properties qualify — including second-hand homes with capital improvements.
- Capital Claims Tax Depreciation are the industry experts, servicing clients Australia-wide with ATO-compliant reports.
With interest rates on the way down in 2025, Australian property investors are stepping off the sidelines and back into the market. The Reserve Bank of Australia (RBA) has already reduced the cash rate to 3.85% in May, and most major economists are forecasting further cuts before the end of the year. As borrowing becomes cheaper and market sentiment improves, property investment feasibility is once again under the microscope.
For savvy investors, this renewed opportunity is more than just about interest rates. It’s about running the numbers carefully — and one of the most powerful, yet overlooked, components of any feasibility analysis is tax depreciation.
Whether you’re buying a brand new build or upgrading an older dwelling, Division 40 (plant and equipment) and Division 43 (capital works) depreciation deductions can significantly improve cash flow, lower your tax liability, and boost your return on investment. And with Capital Claims Tax Depreciation, investors Australia-wide — from metro centres to regional towns — can access tailored, ATO-compliant reports to maximise these benefits.
The New Interest Rate Environment: What It Means for Investors
Since the RBA started its tightening cycle in 2022, many investors have adopted a “wait and see” approach. But 2025 is bringing a turning point. The May rate cut, with more expected in August and November, is creating renewed interest in residential investment.
Lower rates mean:
- Reduced loan servicing costs, improving yield metrics.
- Improved borrowing capacity, making feasibility stack up on more properties.
- Positive market sentiment, increasing buyer activity and tenant demand.
But reduced interest alone doesn’t guarantee a profitable investment. Smart investors know that maximising deductions — especially depreciation — can be the difference between a good deal and a great one.
Depreciation in Property Investment: Why It Matters
Depreciation is the non-cash tax deduction available to property investors, reflecting the decline in value of a building’s structure and its fixtures and fittings over time.
Under the Income Tax Assessment Act, there are two key forms:
- Division 43 – Capital Works: Covers the building’s structure (e.g., walls, roof, concrete, brickwork), claimable at 2.5% per year over 40 years.
- Division 40 – Plant and Equipment: Covers removable items (e.g., appliances, carpets, blinds, hot water systems), which depreciate at different rates depending on effective life.
Critically, most residential investment properties are eligible for Division 43, and new properties and capital improvements to older properties may qualify for both.
How Depreciation Boosts Your Cash Flow: A Real Example
Let’s say you’re an investor earning $150,000 gross annual income and considering a brand-new 3-bedroom house. At this income level, your marginal tax rate (including Medicare levy) is around 39%.
If your property generates $12,000 in depreciation in the first year, here’s what that means:
- Depreciation deduction: $12,000
- Tax saving: 39% of $12,000 = $4,680
- This is a non-cash deduction, meaning you haven’t spent this amount, but your taxable income is reduced, and you receive that amount back via your tax return.
That’s $4,680 in real cash flow improvement — just from claiming depreciation.
Typical Depreciation in the First 5 Years
The following table outlines typical depreciation deductions (Division 40 + Division 43) for various property types. These figures are indicative only and vary depending on build quality, location, and asset inclusions. They assume standard construction and typical inclusions.
| Property Type | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total (5 years) |
| Brand new 3-bed house | $12,000 | $11,000 | $10,000 | $9,000 | $8,000 | $50,000 |
| Brand new 2-bed unit | $10,000 | $9,000 | $8,000 | $7,000 | $6,000 | $40,000 |
| Second-hand 3-bed house | $5,000 | $4,500 | $4,200 | $3,800 | $3,500 | $21,000 |
| Second-hand 2-bed unit | $4,000 | $3,500 | $3,200 | $2,800 | $2,500 | $16,000 |
Note: Under current legislation, second-hand residential properties purchased after 9 May 2017 are not eligible to claim Division 40 plant and equipment unless the assets are new or the property is substantially renovated. However, Division 43 capital works can still provide substantial deductions.
Don’t Miss 40 Years of Depreciation Deductions
Even if your property isn’t brand new, you can still claim depreciation. The ATO allows claims on:
- New builds: 40 years of capital works depreciation (from construction completion).
- Capital improvements: Renovations or extensions, even on older properties.
- Structural additions by previous owners — e.g., pools, pergolas, bathrooms — provided construction occurred post-1987.
This means that most investment properties across Australia — including those built decades ago — will still qualify for tens of thousands in depreciation deductions over time.
Why Capital Claims Are the Trusted Experts
When it comes to maximising your deductions, you need a specialist who understands the nuances of the tax code, construction costs, and asset valuations. Capital Claims Tax Depreciation are industry leaders in this space, with decades of experience delivering expert reports for:
- Residential and commercial properties
- Brand new and second-hand investments
- City, regional, and rural clients
- Individual, trust, SMSF, and company investors
Our reports are ATO-compliant, prepared by qualified quantity surveyors, and designed to maximise your claims across every asset and improvement — ensuring you get the most accurate and valuable depreciation schedule available.
Final Word: Make Depreciation Central to Your Feasibility Analysis
In a rate-cut environment, property becomes more attractive. But strong returns still depend on how well you understand the numbers.
A comprehensive investment feasibility should include:
- Purchase price and acquisition costs
- Expected rental income
- Loan servicing and outgoings
- Tax depreciation benefits
- After-tax cash flow and ROI projections
Depreciation isn’t just an add-on — it’s a key lever in improving returns, reducing tax, and increasing cash flow. Over 5 years, the savings can amount to tens of thousands of dollars, often turning a neutral or negative cash flow investment into a positive one.
Have you already purchased and need a depreciation schedule?
Capital Claims Tax Depreciation are ready to assist you with you depreciation schedule.
Visit www.capitalclaims.com.au or call 1300 922 220 to learn more.
Don’t miss this unique intersection of falling rates and rising returns — run the numbers right and let depreciation power your next investment.
Get a Free Quote for a Depreciation Schedule.
We’ll include an estimate of your potential deductions, and if we can’t guarantee a strong result, we’ll let you know up front and there will be no cost to you.