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If you’re just getting started with your property investment journey, there’s one term you’ll hear again and again: “depreciation.” It might sound like something best left to your accountant but here’s the deal– understanding depreciation can actually put money back in your pocket. Yes, we’re talking about major savings when tax time rolls around. The key to unlocking those benefits? A depreciation schedule for investment property. In this guide, we’ll explore what that means, how it works, and why every smart investor should have one.
What is a depreciation schedule?
A depreciation schedule is like a roadmap of your property’s value over time, specifically: how that value decreases due to wear and tear. Prepared by a qualified quantity surveyor, a depreciation schedule outlines all the components of your investment property that lose value each year. We’re talking about everything from bricks and mortar to carpet and air-conditioning units. It translates property depreciation into tax deductions that reduce your taxable income.
Why does this matter? Because every dollar you claim through depreciation is a dollar that stays in your pocket. It’s one of the most effective ways to improve your investment’s cash flow without raising the rent or cutting costs.
With a detailed depreciation report for investment property in hand, you can better predict your annual returns, assess affordability for future investments, and make smart portfolio decisions based on actual numbers, not guesswork.
How does the depreciation schedule for investment property work?
When you purchase an investment property, the Australian Taxation Office (ATO) allows you to claim deductions for its decline in value. These deductions are split into two categories:
Division 43: Capital Works – This covers the building structure and fixed assets like bricks, concrete, windows, and roofing.
Division 40: Plant and Equipment – This includes easily removable assets such as carpets, blinds, appliances, and furniture.
Your depreciation schedule for investment property lays out how much you can claim each year for both categories. These values are calculated based on the property’s construction date, cost, and the effective life of each asset. The beauty of it? Once the report is done, it’s valid for up to 40 years and can be used in your annual tax returns without any changes unless renovations are made.
You can also choose between two methods of calculation: the diminishing value method, which allows higher deductions in the early years, or the prime cost method, which spreads deductions evenly across an asset’s effective life. Your surveyor and accountant can help decide which strategy aligns best with your cash flow goals.
Need help figuring out how to finance an investment property? Reach out to us today, we’re here to help.
Why Property Investors Need One
As per Duo Tax, roughly 80% of property investors miss out on the full benefits of property depreciation simply because they don’t get a depreciation schedule. That means thousands of dollars are left on the table each year. Depreciation is typically the second-largest tax deduction after interest on your home loan. For savvy investors, it can be the difference between negative and positive cash flow.
In fact, BMT Tax Depreciation data shows average first-year depreciation claims in FY 2023-24 topped $11,000. Even investors in older properties achieved an average of $6,000 and $7,200 in first full-year financial deductions.
What’s more? A property depreciation schedule also complements other strategies like negative gearing or positive cash flow investing. It reduces your taxable income and makes your property more financially efficient, irrespective of the market cycle. It doesn’t matter if you’ve bought a brand-new apartment, a renovated terrace, or a second-hand home, a depreciation schedule uncovers deductions you might never see otherwise. It’s not just about deductions, it’s about making your money work smarter.
And if you’re eyeing a residential investment property, depreciation gives you that extra edge to boost long-term profitability.
What Can Be Claimed in Property Depreciation?
Division 43: Capital works
This includes structural elements like walls, roofing, wiring, flooring, and even renovations done by previous owners. If your property was built or renovated after 15 September 1987, you get 2.5% per year over 40 years.
Division 40: Plant & equipment
These are easily removable assets such as air-conditioning, ovens, window treatments, carpets etc. Each asset has a specific lifespan and can be claimed using the ATO’s prime cost or diminishing value method.
Note: if you bought the property after 9 May 2017, you cannot claim depreciation on second-hand plant items that were already installed, you can only claim depreciation for new assets you purchased.
How to Get a Depreciation Schedule
Getting your property depreciation schedule is a simple 3-step process:
- Hire a qualified quantity surveyor – Make sure they’re certified by the Australian Institute of Quantity Surveyors (AIQS) and are a registered tax agent.
- Provide property details – Settlement date, purchase price, construction date, renovation history, and access for inspection.
- Inspection and report – The surveyor will inspect your property, identify all depreciable items, and share a detailed depreciation report for investment property (valid for up to 40 years).
The best part? The tax depreciation schedule cost (usually $500 to $800) is itself tax deductible.
Moreover, many firms even guarantee that your first-year claim will be double the cost in deductions, so you often come out ahead immediately.
How Much Can You Claim?
On average, investors claim between $6,000 and $15,000 in the first year alone, depending on the property’s age, type, and fit-out. Here’s a rough breakdown:
- Brand-new properties (2021-2024) averaged $16,700 first-year depreciation.
- Remodeled properties (2017-2020) pulled around $8,800.
- Older properties (built between 1987 and 2003) averaged $6,000+.
Moreover, staying ahead of both commercial and housing market predictions is crucial to make your property as financially efficient as possible. That includes tapping into tax deductions like depreciation to keep your cash flow strong no matter what the market is doing.
Note: Actual claimable amounts can differ based on local council valuations, property type, and location.
Things to Watch Out In Property Depreciation
Post-2017 rule changes for second-hand assets
If your contract was exchanged after 9 May 2017, depreciation on second-hand plant items is off-limits. You can still claim capital works and depreciation on any brand-new assets you purchased.
Common mistakes and audit risks
- Assuming old properties don’t qualify: Even properties built before 1987 can yield deductions via renovations.
- Skipping a physical inspection: This often leads to underestimating claimable items and you may lose out on hidden deductions (photos alone aren’t enough)
- Failing to update schedules after renovations: You need a new report to capture new deductions.
- Losing records or receipts: Keep receipts, logs, and installation dates to back up your claims.
- Missing the June 30 window: If you’ve overlooked deductions, you can only amend the past two tax returns.
Final Thoughts
Is it worth it? ROI for investors
Absolutely. A one-off tax deductible fee unlocks recurring deductions that add up to tens of thousands over the life of your property. That means extra cash flow, better returns, and less stress.
When to speak with your accountant
Bring your depreciation report for investment property to your accountant before filing your tax return. They’ll integrate it into your return, or help amend past returns if you’ve missed previous deductions. They’ll also help you decide the best depreciation method and guide you on when to order a new schedule.
And soon enough, depreciation can change the entire cash flow profile of your rental.
At InvestorKit, we’re more than a buyer’s agency, we’re your strategic partner in growth. We help property investors like you discover every possible advantage, and a professionally prepared tax depreciation schedule for investment property is one of the most powerful tools out there.
Ready to maximise returns and minimise stress?
Get in touch with our experts today.
References:
[1] – Duotax.com.au – A guide to depreciation schedules for investment properties
[2] – Ato.gov.au – Capital works deductions explained by the Australian Taxation Office
[3] – Duotax.com.au – Key differences between Division 40 and Division 43
[4] – Thrifty.tax – Understanding Division 40 and Division 43 in property depreciation
[6] – Duotax.com.au – Rental property depreciation rates for older properties
[7] – Depreciator.com.au – Tax depreciation schedules and how they benefit investors