Property Depreciation in Australia — How to Claim It (2026 Guide)

Property depreciation is one of the most underused tax deductions available to Australian investors. Many landlords don't claim it at all — leaving thousands of dollars on the table every year. This guide explains how it works, what you can claim, and how much it's worth.

What Is Property Depreciation?

The ATO allows investment property owners to claim a tax deduction for the natural wear and tear of the building and its fixtures over time. Even though you're not paying cash for this "expense," the ATO recognises it as a real cost of ownership and allows you to deduct it from your taxable income.

There are two types of depreciation deductions:

• Division 43 — Capital Works Deduction: The building structure itself depreciates at 2.5% per year for 40 years (for buildings constructed after July 1985)
• Division 40 — Plant and Equipment: Fixtures, fittings, and appliances (carpet, blinds, hot water system, dishwasher, air conditioning) depreciate at various rates depending on their effective life

How Much Is It Worth?

For a typical new property purchased for $650,000 (building value ~$400,000, land ~$250,000):

• Division 43: $400,000 × 2.5% = $10,000/year deduction
• Division 40: $15,000–$25,000 in plant and equipment depreciating over 5–20 years. Year 1 deduction might be $4,000–$8,000 using diminishing value method
• Total year 1 depreciation: $14,000–$18,000

At a 37% marginal tax rate, $16,000 in depreciation = $5,920 in tax savings — almost $114/week back in your pocket. This is a real cashflow improvement that significantly reduces your out-of-pocket holding cost.

New vs Old Properties

New properties: Maximum Division 43 and Division 40 deductions. A brand new property can generate $15,000–$25,000/year in total depreciation in the early years. This is the main tax argument for buying new property.

Properties built after 1985 but not new: Division 43 still available (pro-rated for remaining 40-year life). Division 40 for plant and equipment — only items you purchased (i.e. if you replaced the carpet, you can depreciate new carpet, but not the original carpet that was there when you bought).

Properties built before 1985: No Division 43 deduction. Limited Division 40 for any new plant you install. Depreciation benefit is significantly lower.

2017 rule change: Second-hand properties (not new) — you can only depreciate plant and equipment that you install yourself after purchase. You cannot claim depreciation on existing fittings in a second-hand property purchased after 9 May 2017. This significantly reduced the depreciation benefit of buying existing investment properties.

How to Claim — Quantity Surveyor Report

To maximise your depreciation claims, you need a tax depreciation schedule prepared by a qualified quantity surveyor. This is a once-off document (updated when you make improvements) that lists every depreciable item and its annual deduction.

Cost: $600–$900 for a residential property. The schedule typically pays for itself in the first year's additional tax savings.

The ATO requires quantity surveyor estimates for properties where you don't have original construction costs — which is most second-hand properties.

Depreciation and Capital Gains Tax

Important: When you sell, the Division 43 deductions you've claimed are "clawed back" and added to your capital gain (this is called the cost base reduction). So depreciation provides a timing benefit — you get the tax saving now and pay it back (partially) when you sell. The net benefit depends on your marginal rate when claiming vs your marginal rate when selling, and the time value of money.

Not financial advice. Tax outcomes depend on your individual circumstances. Always consult a registered tax agent.