Depreciation Schedule for Investment Property: How to Claim $5,000+ More

A depreciation schedule is a document prepared by a quantity surveyor that lists all the depreciable assets in your investment property and calculates how much you can deduct each year. For many investors, depreciation is the second-largest tax deduction after loan interest — yet it is often overlooked.

Why Depreciation Matters

When you buy or improve an investment property, some costs cannot be deducted immediately. Instead, the ATO allows you to claim a portion of those costs each year over the asset's "effective life." This non-cash deduction reduces your taxable income without any cash outlay.

For a property with a construction cost of $350,000 and $40,000 in plant and equipment, the combined annual depreciation in the first few years may exceed $15,000 — a significant reduction in your taxable income.

Two Types of Depreciation

Division 43 — Capital Works

This covers the structural elements of the building:

• Walls, floors, ceilings, windows
• Fixed wiring and plumbing
• Built-in cupboards and benchtops
• Driveways, fences, and in-ground pools

The deduction rate is a flat 2.5% per year of the original construction cost, claimable for 40 years from the date of construction. If you buy an existing building, you can still claim this deduction if the building was constructed after 17 July 1985 — you just need to estimate the original construction cost (a quantity surveyor does this for you).

Division 40 — Plant and Equipment

These are removable or mechanical items with a limited effective life:

• Ovens and cooktops (12 years)
• Dishwashers (10 years)
• Air conditioning units (10–15 years)
• Hot water systems (12 years)
• Carpet (10 years)
• Blinds (10 years)
• Smoke alarms (5 years)

Each item depreciates at either the prime cost (straight-line) or diminishing value method. Diminishing value gives a higher deduction in early years; prime cost gives equal deductions throughout the life of the asset.

Important: For investment properties purchased after 9 May 2017, you can only claim Division 40 depreciation on new plant and equipment or items you installed yourself. Pre-existing second-hand items in a purchased property are no longer eligible.

Getting a Depreciation Schedule

A quantity surveyor (QS) is the only professional qualified to estimate construction costs for tax purposes. The process involves:

1. Inspecting the property (or using plans for new builds)
2. Identifying all depreciable assets
3. Estimating construction and fit-out costs
4. Calculating annual deduction schedules using both diminishing value and prime cost methods

A typical residential depreciation schedule costs $500–$800 and is itself a tax-deductible expense. The schedule is valid for the life of the property.

When to Get a Depreciation Schedule

Ideally, get the schedule in your first year of ownership so you can claim from the beginning. If you have owned the property for several years without one, a QS can still prepare a schedule — you can potentially amend previous tax returns (up to two years for individuals) to claim missed deductions.

New vs Existing Properties

• New properties offer the most depreciation — full construction costs are claimable under Division 43, and all plant and equipment is new and eligible under Division 40
• Properties built before 1985 have no Division 43 entitlement but may still have eligible Division 40 items you installed
• Substantially renovated properties may qualify for Division 43 on the renovation costs regardless of when the original building was built

Renovations and Improvements

When you undertake a renovation, the cost of the work becomes a new capital works claim. Keep all invoices from builders and tradies — your QS can incorporate these into an updated depreciation schedule.

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Use the Investment Property Calculator to see how depreciation deductions affect your net cash flow and after-tax return.