Property Depreciation Calculator (Australia)

Property depreciation allows investors to claim the decline in value of an investment property’s building structure (Division 43) and plant and equipment (Division 40) as tax deductions (ATO — Capital works deductions (Div 43)). For a property with $300,000 in construction cost and $15,000 in plant items, the annual depreciation deduction could be $10,000-$12,000, producing a tax offset of $3,000-$5,400 depending on the marginal rate. The calculator above estimates depreciation deductions for both divisions.

How Property Depreciation Works in Australia

Depreciation is a non-cash tax deduction — you do not need to spend any money to claim it. It recognises that the building and its contents lose value over time due to wear and tear. There are two separate systems for claiming depreciation on investment properties.

Division 43 — Capital works deductions cover the building structure: walls, roof, floors, doors, windows, and fixed improvements like driveways and fences. For standard residential rental settings, the annual deduction follows the usual Division 43 rate and write-off period (ATO — Work out your capital works deductions). The building must have been constructed after 15 September 1987 to qualify. Even if you buy an older property, you can claim Division 43 on the remaining years of the 40-year period.

Division 40 — Plant and equipment covers removable and mechanical items: carpet, blinds, air conditioning, hot water systems, dishwashers, ovens, smoke alarms, and other fixtures (ATO — Depreciating assets in rental properties). Each item has an effective life determined by the ATO, and you choose between the diminishing value or prime cost depreciation method.

The two divisions are independent — you can claim both on the same property. Together, they can provide a substantial non-cash deduction that reduces your taxable income.

Division 43 vs Division 40

Second-Hand Property Rules (Post-May 2017)

From 1 July 2017, the rules for claiming Division 40 depreciation on residential rental properties changed significantly (ATO — Second-hand depreciating assets (depreciation section)).

If you purchased the property after 7:30pm AEST on 9 May 2017:

• You can claim Division 43 (building structure) on both new and second-hand buildings
• You cannot claim Division 40 on second-hand plant and equipment already in the property (such as existing carpet, blinds, or appliances)
• You can claim Division 40 on new items you purchase and install yourself (such as a new dishwasher or air conditioner you buy)
• There are exceptions for investors carrying on a business of letting rental properties, corporate tax entities, and certain trusts

If you purchased the property before 9 May 2017:

• The old rules still apply — you can claim Division 40 on all items, including second-hand plant and equipment

This restriction is an important consideration when evaluating the tax benefits of older investment properties. For post-May 2017 purchases of existing properties, Division 40 deductions are limited to items you buy new yourself.

Common Plant and Equipment Items

The following table shows common rental property plant and equipment items and their ATO effective lives, used to calculate Division 40 depreciation.

Source: ATO Commissioner’s determination of effective lives 2025 (ATO — Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025).

Quantity Surveyor Reports

While this calculator provides estimates, a detailed depreciation schedule for an investment property is typically prepared by a qualified quantity surveyor.

What a quantity surveyor does:

• Inspects the property (or uses building plans and photographs)
• Determines the original construction cost of the building for Division 43 purposes
• Identifies and values all plant and equipment items for Division 40
• Produces a tax depreciation schedule covering up to 40 years of deductions

Typical cost: $500-$770 for a standard residential property. The fee is itself tax deductible (claimed over 5 years or in the year incurred). Reports typically identify $5,000-$15,000 or more in annual deductions.

When a report is most relevant:

• Properties built after 1987 (eligible for Division 43)
• Properties purchased before May 2017 (full Division 40 on second-hand items)
• Recently renovated properties (new construction costs to claim)

Need a Professional Depreciation Schedule?

Our calculator provides estimates based on standard ATO depreciation rates and effective lives. For a comprehensive tax depreciation schedule accepted by the ATO, consider a professional quantity surveyor report.

Washington Brown{rel=“nofollow sponsored”} prepares depreciation schedules for investment properties starting from $385. A professional schedule typically identifies $5,000-$15,000 or more in annual deductions and covers both Division 43 and Division 40 in detail. The cost of the report is itself tax deductible.

We may receive a referral fee at no extra cost to you.

Worked Example: 1988 Perth Unit, Post-May 2017 Purchase

Tom, 29, is an electrician who recently purchased a 1-bedroom unit in Perth for $380,000. The unit was originally built in 1988.

Property details:

• Built: 1988
• Estimated construction cost: $180,000 (based on quantity surveyor estimate for 1988 builds in Perth)
• Purchased: March 2025 (post-May 2017 rules apply)
• New items Tom installed after settlement: carpet ($4,500, 8-year life), split-system air conditioner ($3,200, 10-year life), hot water system ($2,800, 12-year life)

Division 43 calculation:

• Construction cost: $180,000
• Rate: 2.5% per year
• Annual deduction: $180,000 x 2.5% = $4,500
• Years remaining: 40 - (2025 - 1988) = 3 years of remaining Div 43

Division 40 calculation (diminishing value method):

• Carpet: $4,500 x (200% / 8) = $1,125/year in Year 1
• Air conditioner: $3,200 x (200% / 10) = $640/year in Year 1
• Hot water system: $2,800 x (200% / 12) = $467/year in Year 1
• Total Division 40: $2,232/year in Year 1

Total Year 1 depreciation: $6,732

At Tom’s 32% marginal rate (30% income tax + 2% Medicare), this produces a tax saving of approximately $2,154 per year. Tom’s $500 quantity surveyor report is paying for itself 4.3 times over in the first year alone.

Key points from Tom’s scenario:

• Even on a 37-year-old property, Division 43 claims are worth $4,500/year for the remaining 3 years
• Because Tom purchased after May 2017, he cannot claim Division 40 on any existing items (the old carpet, original oven, etc.) — only on the new items he installed himself
• The diminishing value method gives Tom $2,232 in Division 40 deductions in Year 1, compared to $1,179 if he used prime cost — almost double in the first year

Enter your depreciation total into our negative gearing calculator to see how it affects your after-tax holding cost.

Is a Quantity Surveyor Report Worth the Cost?

One of the most common questions on property investment forums is “Is it worth getting a depreciation schedule?” — particularly for older properties. The answer is almost always yes for properties built after 1987.

The ROI calculation:

Even at the highest report cost of $770, the first-year Division 43 claim alone generates a 108% return on the report fee — and you continue claiming those deductions for up to 40 years. Add Division 40 items and the ROI increases further.

The report fee is itself tax deductible (you can claim it over 5 years or as an immediate deduction in the year incurred). One forum poster described getting “$40,000 worth of deductions over 40 years for a $330 cost” — a return that is hard to match with any other professional service.

When a report may NOT be worth it:

• Property built before 16 September 1987 (no Division 43 available) AND purchased after May 2017 (no second-hand Division 40)
• Very low construction cost (e.g., a vacant land block with a small shed)
• You plan to sell within 1-2 years and the CGT cost base reduction outweighs the benefit

Diminishing Value vs Prime Cost: Which Method to Choose?

The calculator lets you toggle between the diminishing value and prime cost methods for Division 40 items. The choice affects how deductions are distributed across the asset’s life.

Side-by-side comparison: $3,000 carpet (8-year effective life)

Diminishing value front-loads deductions: higher claims in early years, lower claims later. Choose this method if you plan to sell the property within 5-7 years, as you receive a larger proportion of the total deductions before you sell.

Prime cost spreads deductions evenly. Choose this method if you plan to hold long-term (10+ years), as the total deductions are the same over the asset’s full life and the even distribution can be simpler for tax planning.

You can choose different methods for different assets, but once chosen for a particular item, you cannot change the method for that item.

The Post-May 2017 Myth: What Actually Changed

Forum posts frequently confuse what the 2017 depreciation restriction covers. Here is exactly what changed and what did not (ATO — Second-hand depreciating assets (depreciation section)):

What the 2017 rule restricts:

• Division 40 (plant and equipment) deductions on second-hand items in residential rental properties purchased after 9 May 2017
• This means you cannot claim depreciation on the existing carpet, blinds, appliances, or fixtures that were in the property when you bought it

What the 2017 rule does NOT restrict:

• Division 43 (capital works) is completely unaffected. You can claim Div 43 on any property built after 1987, regardless of when you purchased it. This is often the largest depreciation deduction and remains fully available.
• New items you purchase and install yourself are fully claimable under Division 40, even in a second-hand property. If you buy a new air conditioner and install it in a 30-year-old unit, you can claim it.
• Renovations are fully claimable. New construction work (Division 43) and new items installed as part of a renovation (Division 40) are both unaffected by the 2017 rule.

The widespread belief that “you can’t claim depreciation on older properties” is incorrect. Division 43 alone can be worth $3,000-$8,000 per year on a typical investment property built after 1987. Use the CGT calculator to understand how Division 43 deductions affect your cost base when you eventually sell.

Go Deeper with the Full Spreadsheet

This calculator estimates depreciation for a single year. Our premium spreadsheet tracks depreciation schedules across multiple years and multiple properties — showing how Division 43 and Division 40 deductions decline over time and how they interact with your negative gearing position and CGT cost base.

Need depreciation records ready for your return? The ATO rental property worksheet keeps annual deductions organised for accountant handover.

How Depreciation Affects CGT

Division 43 deductions you claim reduce your property’s cost base when you sell (ATO — Cost base adjustments for capital works). This means claiming more depreciation now can increase your CGT liability later.

Using the worked example above: if the investor claimed $6,250 per year in Division 43 for 10 years ($62,500 total), the property’s cost base would be reduced by $62,500 when calculating CGT on sale. At a 30% marginal rate with the 50% CGT discount, the additional CGT would be approximately $9,375.

Compare this to the tax savings from depreciation over 10 years: $62,500 x 30% = $18,750 in tax savings. The net benefit is $18,750 - $9,375 = $9,375 — plus the time value of money (you receive the tax savings each year, but pay the additional CGT only on sale).

In most cases, the annual tax offsets from depreciation exceed the eventual additional CGT, particularly when accounting for the time value of money. Use the capital gains tax calculator to model the CGT impact of depreciation when you sell.