Depreciation on Investment Properties: The Tax Deduction Most Investors Don't Fully Understand

It Sounds Too Good to Be True

The ATO allows investment property owners to claim the declining value of the building and its fixtures as a tax deduction. It's one of the most generous deductions available — and one of the most misunderstood.

Two Types of Depreciation

Building (Capital Works)

You can claim 2.5% of the construction cost of the building each year for 40 years. A house that cost $400,000 to build gives you a $10,000 annual deduction — without spending a single additional dollar.

Fixtures and Fittings (Plant and Equipment)

Items like ovens, dishwashers, carpets, curtains, and hot water systems all lose value over time. You can claim their declining value as a deduction, typically over 5–10 years depending on the item.

Important Caveats

Rules around depreciation have changed significantly over time. What you can claim depends on when the property was built, when you purchased it, and whether items were new or second-hand. Assume nothing — get a depreciation schedule prepared by a qualified quantity surveyor.

Don't Buy a Property Because of Depreciation

Too many investors chase tax deductions at the expense of capital growth. A brand new property with maximum depreciation in a poor location is a worse investment than an older property in a high-growth area. Depreciation is the cherry on top — it should never be the reason you buy the cake.

You can also create depreciation in older properties through renovation, which may give you the best of both worlds: a well-located property with fresh depreciation claims.