Property Depreciation for Australian Investors: How to Claim It and How Much It's Worth (2026)

When you buy an investment property, you are acquiring two distinct types of depreciable assets: the building structure itself (Division 43 - Capital Works) and the removable plant and equipment items within the property (Division 40). Both decline in value over time due to wear and tear, and the ATO allows you to claim a deduction for this decline each year against your rental income and other assessable income.

Depreciation is a non-cash deduction - you do not need to spend any money to claim it. The deduction is based on the original cost of construction and the items in the property, calculated according to ATO-prescribed effective lives and rates. For many investment property owners, depreciation is the second-largest deduction after loan interest - and for newer properties, it can be the largest.

Division 43 allows you to claim a deduction for the structural elements of the building:

• What it covers: The construction cost of the building itself - walls, floors, roofs, windows, doors, fixed wiring, plumbing, driveways, and any structural improvements.
• Rate: 2.5% of the original construction cost per year, over 40 years. A property that cost $200,000 to construct generates $5,000 in annual Division 43 deductions.
• Eligibility by construction date: Division 43 deductions are available for residential properties constructed after 17 July 1985. For commercial properties, construction after 20 July 1982. Properties constructed before these dates are not eligible for Division 43 deductions.
• Renovations and improvements: Capital improvements made to a property (new extension, new kitchen, new bathroom) are claimable under Division 43 from the date of completion, regardless of when the original property was built.
• Determining construction cost: You need to know the original construction cost (not the purchase price). A quantity surveyor prepares an estimate of the construction cost for properties where original records are unavailable - this is the normal approach for investment property owners who did not build the property.

Division 40 covers the removable assets within the property that have finite effective lives:

• What is included: Carpets, blinds, curtains, dishwashers, ovens, cooktops, rangehoods, air conditioning units, hot water systems, ceiling fans, smoke alarms, and other removable fixtures. Each item has an ATO-prescribed effective life ranging from 5 to 20+ years.
• New properties: For new properties, Division 40 deductions are available for all qualifying plant and equipment items at their original cost.
• Second-hand (existing) residential properties - post-2017 rule change: Investors who purchased a second-hand residential property after 9 May 2017 cannot claim Division 40 deductions for plant and equipment that was in the property at the time of purchase. They can only claim Division 40 for items they newly install after purchase. This was a significant change that reduced the depreciation value of existing residential properties for investors.
• New properties purchased from a developer: Even post-2017, investors purchasing a brand-new property (first use as residential) from a developer or builder can claim full Division 40 deductions on all plant and equipment.
• Calculation method: Each item is depreciated using either the diminishing value method (higher deductions in early years) or the prime cost method (equal deductions over effective life). Diminishing value is typically more advantageous in the early years and is the more commonly used method.

A tax depreciation schedule prepared by a qualified quantity surveyor is the standard approach:

• What a quantity surveyor does: A registered quantity surveyor inspects the property (or uses construction records and site plans) to identify and value all depreciable items under both Division 43 and Division 40. They prepare a written schedule of annual deductions for each item over the depreciation period.
• Cost: A residential property depreciation schedule typically costs $500 to $800, depending on the property type and surveyor. This fee is itself tax-deductible as a property expense.
• How long it is valid: A depreciation schedule is prepared once and covers the entire depreciation period of the property (up to 40 years for Division 43). It only needs to be updated if you make capital improvements or if your accountant requires adjustments.
• ATO requirement: The ATO requires a quantity surveyor report to substantiate Division 43 deductions where original construction cost records are unavailable. An accountant cannot estimate construction costs - a registered quantity surveyor is required.
• When to get one: As soon as you purchase an investment property, particularly if it is a new property or a post-1985 construction. The schedule pays for itself typically within the first year through tax savings. You can claim back-deductions if you have previously owned the property without a schedule.
• Finding a quantity surveyor: The Australian Institute of Quantity Surveyors (AIQS) maintains a register of members. Major providers include BMT Tax Depreciation, Washington Brown, and Deppro - all of whom provide a fee estimate and projected first-year deduction before you commit.

The value of a depreciation schedule depends on the property's age, construction cost, and contents. For a new 3-bedroom house in a capital city constructed for $350,000 and fitted out with standard appliances and finishes, first-year depreciation might total $12,000 to $18,000 - generating a tax saving of $3,900 to $5,850 for an investor on the 32.5% marginal rate, or $5,640 to $8,460 for an investor on the 47% rate (including Medicare levy).

For older properties (pre-2017 purchase, post-1985 construction), the Division 43 component alone can generate $3,000 to $8,000 per year in deductions. For properties where a second-hand purchase post-2017 means Division 40 is unavailable, the deduction is limited to Division 43 structural allowance only - still meaningful for newer buildings.

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