Why You Need A Tax Depreciation Schedule For Your Rental Property

Missing Out Your Tax Depreciation Schedule Could Costing You Hundreds Of Thousands Of Dollars In Savings.

Property investors and business owners often seek ways to save money and increase cash flow. However, many overlook a significant tool: a rental property depreciation schedule.

The barrier for many is a lack of awareness regarding property depreciation, rental property depreciation schedules and tax deductions. Fortunately, saving money begins with learning more about this topic.

This guide examines property tax depreciation schedules, their components, and how Washington Brown can help you save on property investments

What Is Property Depreciation?

Property depreciation is the decline in asset value over time as a result of physical deterioration. This deterioration can apply to the structure you’ve invested in and the contents of the building.

According to Australian tax law, individuals who own real estate used for income-producing purposes are entitled to claim the depreciation of that property against their taxable income.

Deciding to purchase a rental property tax depreciation schedule can help you save hundreds of thousands of dollars that you may not have even known you could save on your investment property.

Understanding the Different Depreciation Deductions

Rental property depreciation rates are based upon two parts of the income tax assessment act.

The first is capital works deductions (Division 43), which help you save money by making claims regarding the building itself. For example, some of the capital allowances that you may be able to claim include items like concrete, brickwork, tiling and roofing.

The second, property plant and equipment depreciation (Division 40), cover fixtures and fittings that you can find within your investment property. Some examples of plant and equipment deductions include items like ovens, dishwashers, and carpets.

Making both claims can help you save a considerable amount of money on account of gradual wear and tear experienced on the property you own and the property’s contents. But what exactly are the rules on claiming depreciation? Who can do it?

Rental Property Depreciation Schedules

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Can All Property Claim Depreciation on Rental Property?

If you’re a commercial property investor, the good news is that there are no restrictions regarding your ability to claim capital works deductions or plant and equipment deductions on any of your properties.

For those who invest in residential properties, the law is more complicated. In the Budget 2017 tax changes, a new law was passed that restricted owners of second-hand residential properties from depreciating “previously used assets” such as ovens, dishwashers, carpets, etc.

The good news is that regardless of when you buy a property, you will still be able to claim the capital works deduction. This represents approximately 85% of the construction cost, provided the property was built after 1987.

Why did the government make these changes? They became more concerned about residential property investors purchasing older properties and claiming high depreciation on their old property.

Fortunately, suppose you purchased your property before 2017 and rented it out during the 2016/2017 financial year. In that case, you can still claim the capital works deduction and the plant and equipment claim on your rental property depreciation schedule.

Understanding this new law is critical to getting the most savings from your older and newer investments.

If you buy a brand-new property, you can still claim the depreciation on the plant and equipment and the building itself. In this way, new property depreciation hasn’t been affected.

New Residential Property Investment Depreciation Case Study

Residential investment properties can confuse those seeking to purchase a tax depreciation schedule and save money on their investment properties. Having a solid idea of what you can expect from your rental property depreciation schedule can help you see the impact of depreciation claims.

Let’s dive into a case we handled for a client who approached Washington Brown for tax depreciation assistance:

Case Study – Apartment

Settlement Date:
Purchase Price:
First Year Claim:

​​This client purchased a high-rise apartment in 2016. The building was constructed in 2015, meaning 39 years of capital allowance deductions and the plant and equipment depreciation were left. The client’s share of common property was also included in their schedule.

The Claim

* Please note that these results are only accurate for properties purchased before 9 May 2017 as a result of changes in the Federal Budget.

Based on the diminishing value method, these are the final amounts the client could claim each year. The claim includes the capital works deductions (i.e., bricks and mortar) and the plant and equipment assets (i.e., fixtures, fittings, and appliances), which are explained in more detail below.

As you can see, depreciation on apartments can yield substantial deductions, with construction costs often relatively high; this client was able to claim $19,622 in the first year alone.

Factors That Affected The Final Claim

Building Allowance (Capital Works Deductions)

The depreciation of the building structure itself is pretty simple. To calculate the building allowance, take the total construction costs and deduct the cost of plant and equipment and any ineligible items (like demolition and living plants). The deductions will be 2.5 per cent per full year of the Building Allowance, totalling 40 years.

Apartments often have higher construction costs in their living areas than houses. This is because the property’s share of common areas, including lobbies, pools, underground car parks, etc., can be included in most states.

In this case, $7,854 is claimable per full financial year.

Plant And Equipment

These items include blinds, carpets, appliances, light fittings, etc. The total value of these items in this house was $45,379. These items depreciate faster than the ‘bricks and mortar’ classified as Building Allowance.

High-rise apartments may have a lot of plant and equipment you don’t know about, including fire services, internal ventilation fans, common property items such as lights and carpet, and much more.

These items have reduced effective life and can be claimed faster,

We’ve prepared over two hundred thousand rental property depreciation schedules, and we make sure you don’t miss out on anything.

What will my potential savings look like?

While your depreciation schedule depends on various factors you can use Washington Brown’s depreciation calculator for an accurate estimate on your investment property.

Property Depreciation Calculator
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Estimated Results

Years Diminishing Value Prime Cost
Year 1 $0.00 $0.00
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How Much Can I Claim In Depreciation Deductions?

The answer to this question depends on a wide variety of factors. For example, the asset’s size, age, and value all play a role in how much you will ultimately be able to deduct once you decide to purchase a tax depreciation schedule.

That said, you can often expect tens of thousands of dollars per annum subject to the property – so it’s well worth investigating.

However, the total will vary from investor to investor, which is why it’s so important to reach out for professional help when seeking to make these deductions on your investment property.

Click here to learn how to calculate depreciation on your rental property, or use the rental property depreciation calculator.

Why Should You Claim Depreciation As a Property Owner?

Real estate, like anything, loses value over time as it begins to experience regular wear-and-tear. The depreciation is already built into the purchase price when buying a property. With the help of a professional, it’s up to you to calculate how much you can claim.

Maximising your property depreciation deductions is essential, regardless of whether it’s a residential property or commercial.

Not only is it common sense, but it’s good business to maximise your deductions and, in turn, your profits. It plays an integral role in investment property strategies. Many owners miss out on the savings that can be made through depreciation. If you don’t want to let these savings go unclaimed, now is the time to get a tax depreciation report and add the savings to your tax return.

Does The Size Of The Property Matter?

When referring to depreciation, Yes, size does matter!

Generally speaking, the larger the property, the more considerable depreciation. That’s because we base the depreciation on the actual cost of construction.

It makes sense that a three-bedroom unit will cost more to build than a one-bedroom unit – all other things being equal.

And the higher the construction cost – the higher the depreciation deductions available to you

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What are Tax Depreciation Schedules?