Finance

Property Depreciation Schedules: How Much You Can Claim in 2026

12 April 2026 13 min read Bold acquisition desk

Depreciation is one of the most valuable and most underutilised tax deductions available to Australian property investors. Unlike interest expenses or property management fees, which require you to spend money to claim them, depreciation lets you deduct the natural wear and tear of your property and its contents, generating a tax benefit with no additional out-of-pocket cost.

For many investors, a properly prepared depreciation schedule produces tax deductions of tens of thousands of dollars over the first five years of ownership alone. Yet plenty of investors either have no schedule at all, or work from one that understates what they can legitimately claim. Both are money left on the table.

What Is Property Depreciation?

When you purchase an investment property, the Australian Taxation Office recognises that the building and its contents deteriorate over time through ordinary use. Rather than let you deduct the full cost of the asset in the year you acquired it, the tax law spreads that deduction across the asset's useful life. That is depreciation.

For property investors, depreciation deductions fall into two categories under the Income Tax Assessment Act 1997: Division 43 (capital works) and Division 40 (plant and equipment). The difference matters. They run under different rules, carry different deduction rates, and since 2017 have been subject to different eligibility restrictions depending on how and when you acquired the property.

Division 43: Capital Works Deductions

Division 43 covers the structural components of the building itself, the elements permanently fixed to the land that cannot easily be removed: the concrete slab, brickwork, roof structure, internal walls, windows, doors, flooring, plumbing, and the like. It also covers structural improvements such as driveways, fencing, retaining walls, and in-ground swimming pools.

The ATO lets you deduct 2.5% of the original construction cost each year over a 40-year period. A property that cost $400,000 to construct returns a capital works deduction of $10,000 per year, a figure that compounds across a long holding period.

One threshold matters here. Capital works deductions are only available for residential buildings where construction commenced after 15 September 1987, and for commercial buildings where construction commenced after 20 July 1982. Properties built before those dates do not qualify for Division 43, though later renovations or extensions that post-date the threshold may still generate a claim.

Division 43 has a further advantage: the 2017 legislative changes discussed below do not touch it. It applies equally to new and established properties, and any investor holding a qualifying property can claim it, whether or not they are the original owner.

A $400,000 construction cost delivers $10,000 in capital works deductions every single year for 40 years. Over a typical ten-year hold that is $100,000 in deductions, and many investors never claim a cent of it because they never commissioned a schedule.

Division 40: Plant and Equipment

Division 40 covers the removable assets within the property, items not permanently fixed to the structure that have an identifiable effective life. Common examples include:

Carpet and other floor coverings
Curtains and blinds
Air conditioning units (split systems and ducted)
Hot water systems
Dishwashers, ovens, and other kitchen appliances
Ceiling fans and light fittings
Smoke alarms and security systems
Garage door motors

Each asset has an ATO-prescribed effective life, and you can claim deductions using either the diminishing value method or the prime cost method.

Diminishing Value vs Prime Cost

Under the diminishing value method, you apply a fixed percentage to the asset's declining book value each year. That front-loads the deductions, producing larger claims in the early years of ownership and smaller claims as the asset ages. For most investors chasing near-term cash flow, it is the preferred method.

The prime cost method deducts an equal amount each year across the asset's effective life, a straight-line approach. The total deduction over the life of the asset is identical under both methods; only the timing changes. Prime cost gives you consistent deductions, but smaller ones in the early years than diminishing value.

Your quantity surveyor's report will usually present both methods, so you or your accountant can pick the approach that suits your tax position in any given year.

The 2017 Changes: What Second-Hand Buyers Need to Know

In the 2017 Federal Budget, the government introduced significant restrictions on plant and equipment depreciation for residential property. They took effect for contracts entered into from 9 May 2017 and rewrote the rules for anyone buying established residential property.

Under the current law, investors who purchase an established residential property (one that has previously been used for residential accommodation) can no longer claim Division 40 depreciation on plant and equipment that existed in the property at the time of purchase. The entitlement to depreciate those assets was extinguished for subsequent purchasers.

The exceptions and nuances matter, though:

New assets you install after purchase. If you replace the carpet, install a new air conditioning unit, or fit a new hot water system, you can depreciate those new assets in full from the date of installation, regardless of when you purchased the property.
New residential properties. If you are the first owner of a newly constructed property and no one has previously lived in it, the 2017 restrictions do not apply. You can claim full Division 40 depreciation on all plant and equipment.
Commercial properties. The 2017 restrictions apply specifically to residential accommodation. Commercial property investors retain the ability to claim plant and equipment depreciation on existing assets in established properties.
Scrapping deductions. When you remove and dispose of an old asset (say, worn carpet or an ageing air conditioning unit), you may be entitled to an immediate deduction for the remaining undeducted value of that asset. This is discussed further below.

The 2017 changes did not eliminate depreciation for residential investors. They shifted the emphasis. New builds and commercial assets remain highly attractive, and established property buyers can still find significant deductions through capital works, new installations, and scrapping.

Why You Need a Quantity Surveyor, Not Your Accountant

A depreciation schedule must be prepared by a qualified quantity surveyor, not your accountant. That is not an arbitrary distinction; it reflects what the ATO actually requires.

Your accountant knows tax law and financial reporting. But estimating the construction cost of a building, working out the original value of plant and equipment at the time of construction, and identifying every depreciable asset in the property calls for specialist knowledge of construction and building costs that a general accountant does not carry.

A qualified quantity surveyor, ideally a member of the Australian Institute of Quantity Surveyors (AIQS), inspects the property physically, identifies all depreciable assets, determines their effective lives, and produces a comprehensive schedule that meets ATO requirements. Your accountant then uses that report to populate your tax return each year.

The ATO explicitly recognises quantity surveyors as qualified to estimate construction costs and asset values for tax depreciation purposes. Their reports carry audit-level credibility, which counts if your return is ever reviewed.

What a Depreciation Schedule Costs, and What It Returns

A professionally prepared residential depreciation schedule typically costs between $600 and $800 for a standard property. The fee moves with property type, size, location, and the complexity of the assets involved. Commercial properties with extensive fit-outs generally cost more.

The fee is itself tax-deductible as a property management expense in the year you incur it. So in a 37% or 45% marginal tax bracket, the effective after-tax cost of a $700 schedule is closer to $440 or $385 respectively.

The return is usually significant. For a new residential property with a construction cost of $350,000, the first-year depreciation claim, combining capital works at 2.5% plus plant and equipment under diminishing value, could easily reach $20,000 to $25,000 or more. At a 37% marginal rate, that is $7,400 to $9,250 in actual tax saved in year one alone. The schedule pays for itself many times over before you lodge the first annual return.

For established properties the numbers are lower but still worthwhile. Even a modest capital works deduction of $5,000 per year saves a 37% bracket investor $1,850 a year, a return of more than 250% on the cost of the schedule in year one.

New Builds vs Established Properties: Different Strategies

Your depreciation strategy changes meaningfully depending on whether you are buying a new or established property.

New Builds

New residential construction offers the most favourable depreciation outcomes. You claim both Division 43 capital works (on the actual construction cost, which is known precisely) and full Division 40 plant and equipment on all assets. A large construction cost base plus brand-new assets at their original value produces the maximum possible claim in the early years of ownership.

If you are buying off the plan, get the depreciation schedule as soon as settlement occurs. Your quantity surveyor can often work from the builder's contract to establish the construction cost, which simplifies the engagement.

Established Properties

For established properties, the Division 40 restrictions push the focus onto Division 43 and ongoing asset replacement. Buy an established property and renovate straight away, replacing flooring, installing new appliances, repainting, or upgrading the kitchen, and you can depreciate all newly installed assets in full. The renovation cost itself may also generate additional capital works deductions where it is structural in nature.

For older properties (pre-1987), capital works deductions on the original structure are not available, but any renovations completed after the eligibility date can still be claimed. A quantity surveyor can pin down the dates and costs of past improvements through a retrospective assessment.

Commercial Property Depreciation

Commercial property, offices, retail tenancies, warehouses, industrial units, runs under a more favourable depreciation regime than residential. The 2017 plant and equipment restrictions do not apply, so investors in commercial assets can claim Division 40 depreciation on all existing assets within the property, regardless of when it was built or who previously owned it.

Commercial buildings also frequently hold higher-value plant and equipment, HVAC systems, lifts, commercial kitchen fit-outs, specialised electrical infrastructure, and fire suppression systems, which generate substantial annual deductions. A well-depreciated commercial property can produce deductions worth a meaningful percentage of the purchase price in the first few years of ownership.

Fit-Out Depreciation for Commercial Tenants

A commercial tenant who fits out a leased space, installing partitioning, flooring, lighting, cabinetry, or specialised equipment, can depreciate those fit-out costs over the effective lives of the individual assets. Business owners often miss this, fixating on the immediate expense of a fit-out and ignoring the ongoing tax benefit it generates.

When a commercial tenant vacates and leaves behind a fit-out that has not been fully depreciated, the remaining undeducted value can be written off as a loss in the year the tenancy ends, a scrapping deduction that can be financially significant.

Scrapping Deductions: An Immediate Write-Off for Old Assets

When you remove and permanently dispose of a depreciable asset, whether during a renovation, an upgrade, or at the end of a tenancy, you may be entitled to claim the asset's remaining undeducted value as an immediate deduction in that tax year. This is known as a scrapping deduction.

Replace the carpet in an investment property and, say, the old carpet had a remaining written-down value of $1,800: you can claim that $1,800 as a deduction in the year of disposal, on top of beginning to depreciate the new carpet from its installation date.

Scrapping deductions can be substantial in renovation-heavy acquisitions, where the previous owner held the property for many years and the installed assets are well into their effective lives. A quantity surveyor who inspects the property before renovation commences can document and value the assets being removed, so the full scrapping deduction is captured.

Common Mistakes That Cost Investors Money

Not having a depreciation schedule at all. The most costly mistake by a distance. Every year without a schedule is a year of deductions you can never recover retrospectively beyond the two-year amendment period.
Using an online calculator instead of a qualified quantity surveyor. Online tools produce estimates, not ATO-compliant schedules. They are no substitute for a physical inspection and a professionally prepared report.
Assuming older properties have no depreciation. Pre-1987 properties cannot claim capital works on the original structure, but renovations, extensions, and plant and equipment replacements may still generate significant deductions.
Using the wrong effective life for assets. The ATO prescribes the effective life for each category of asset. Get it wrong, too short or too long, and you either overclaim (which creates audit risk) or underclaim (which costs you money).
Missing scrapping deductions during renovations. Investors routinely renovate without documenting the assets being removed. Once the renovation is complete, the chance to calculate the scrapping deduction is gone.
Not updating the schedule after capital improvements. Make significant improvements to the property after the original schedule was prepared, and the schedule needs updating to bring in the new assets and any scrapping deductions that arose from the work.

A depreciation schedule is not a one-time document. Review it whenever you improve the property, replace major assets, or approach the end of an asset's effective life. An outdated schedule is a missed deduction.

When to Get a Depreciation Schedule: A Practical Decision Guide

Here is how the call breaks down by property type:

New residential property (post-1987 construction): Get a schedule immediately at settlement. Capital works plus full Division 40 entitlements make this a near-certain positive return on investment.
Established residential property purchased before 9 May 2017: If you have never had a schedule prepared and are still within the two-year amendment period, engage a quantity surveyor now. You may be entitled to amend prior returns and capture deductions you have missed.
Established residential property purchased after 9 May 2017: Still worthwhile for the capital works deduction, provided the property was built after 15 September 1987. The annual deduction may be modest, but over a ten-year hold the cumulative tax saving will comfortably exceed the cost of the schedule.
Commercial property: Always get a schedule. The full Division 40 entitlement and higher asset values make commercial depreciation among the most valuable tax strategies available to investors.
Property you are about to renovate: Have the quantity surveyor inspect before demolition begins. Scrapping deductions on removed assets can be significant and are irrecoverable once the work is done.
Property older than 40 years with no improvements: Capital works deductions on the original structure will have expired. A schedule may still be warranted if there are identifiable renovations completed after the eligibility date, but check with your accountant first on whether the cost is justified.

Not sure whether a schedule is warranted for your specific property? The consultation fee for an initial assessment with a quantity surveyor is typically modest, often free, and will give you a clear picture of the expected annual deduction before you commit.

Depreciation is a passive deduction in the truest sense. Once the schedule is prepared, the tax benefit flows each year without any further action on your part. For investors serious about building wealth through property, capturing this deduction in full is not optional. It is a fundamental part of managing an investment property professionally.