Depreciation on Property | Accountant for Rental Property

Depreciation on Property – what is it and should you know about it? 

If you rent out your property then you can claim tax deductions against that rental property, one possible tax deduction is depreciation. Depreciation is just a way to claim large long life things like for example a building. A building may cost hundreds of thousands of dollars to build and have a life of decades. It would not make sense to claim this cost in one year so the Tax Laws allow for this by letting you claim the cost over a number of years. 

Depreciation on property is broken up into two types ;

  1. Depreciation on Capital Works, the building itself. This will generally be depreciated at 2.5% per year, it does not sound like much but remember your rental property may have cost $400,000 or $500,000 to build. 2.5% of $400,000 is $10,000! That is quite a tax deduction.  
  2. Depreciation on plant and equipment, things like carpet, kitchen and other installations. The ATO has restricted this to only new plant and equipment but this can still be quite a claim if you buy a new property. You can also claim depreciation on renovations for example if you replace the kitchen in your rental property.

So it seems like everyone should claim depreciation on their rental property right? Well not quite there are a few things you should know before you start;

  1. There is a cost – you will generally need to pay a depreciation firm (Quantity Surveyors) to draw up a depreciation schedule. Costs are normally around $500-$700
  2. Age of your building – if your building is older you may have little or no Depreciation to claim.
  3. Tax when you sell – the depreciation you claim comes off the cost base when you sell. So you will potentially save tax now but pay more tax later. 

In many cases it is definitely worth claiming depreciation but there are also cases where its not. Get professional advice to make sure of your position and make a decision one way or the other before you start claiming deprecation on your rental property.