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What is a depreciation schedule for a rental property?
A depreciation schedule lists a rental property's eligible building and asset costs and the tax deductions over time. A quantity surveyor, who is trained to assess building costs, often prepares it. It separates building deductions from the loss of value of equipment. It helps support claims, but does not make the purchase price a deduction.
Updated
What belongs in Division 40 and what belongs in Division 43?
Division 40 deals with the loss of value of eligible items such as appliances, carpets and furniture. These are separate items with a useful life. They are different from the land or the structure of the building.
Division 43 covers eligible construction, including the building and additions to its structure. Claims depend on when it was built, what it cost and whether it is used to earn income. You cannot depreciate the cost of land. The price paid for the whole property does not show what it cost to build at the time.
What does a quantity surveyor contribute to the tax records?
The surveyor gathers the building and asset details needed for the report. If the real building costs cannot be found, a suitably qualified person can estimate them. The report may also list eligible equipment. It can give the details needed to work out each year's decline in value.
A report helps prove a claim. It cannot allow a claim that tax law rules out. How long you owned the property and used it for rent still matters. An accountant applies those records to the report, including any private use. Each listed amount is not a deduction just because it appears in the report.
Can I depreciate the old appliances included with an established home?
Most ordinary residential investors cannot claim loss of value on second-hand plant and equipment bought at or after 7:30pm AEST on 9 May 2017. The rules operate from 1 July 2017. Exceptions cover some types of owners excluded from this rule and property used in a rental business.
The limit concerns used equipment, rather than every claim for an established property. Eligible building costs may still be claimed. Brand-new replacement assets may also qualify. Moving items once used privately at home into a rental can trigger the used-asset limit. Exceptions for assets in new properties have further conditions.
Illustrative example4 steps
Combining two eligible deduction categories in a report
- Assume a report calculates $4,500 of eligible capital works deductions for the year.
- It separately calculates $1,800 for qualifying new equipment.
- Combined scheduled deduction: $4,500 plus $1,800 = $6,300.
- This reduces taxable rental income by the eligible amount; it is not a $6,300 payment from the ATO.
For investors
A non-cash deduction can still affect the eventual sale calculation.
Capital works deductions can lower the CGT cost base, which is the eligible cost total used to work out a later gain. That link is easy to miss if you see the report only as a yearly rental claim. Reports must also set apart new replacements from assets someone else has used. Your accountant or registered tax agent can check allowable claims and later changes to the cost base.
Common questions
Questions about depreciation schedule
Keep learning
Property is a complex world.
Depreciation schedule is one piece of it. Taxes and duties decide what a property really costs to buy and to hold. Next, read about negative gearing, positive gearing and capital gains tax.
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