Depreciation
For rental property, depreciation commonly refers to deductions for eligible capital works and the decline in value of eligible assets. Conditions and exclusions apply.
What depreciation means for a rental property
Property discussions often use depreciation as a collective label for two different deductions: capital works deductions for eligible construction expenditure, and decline in value for eligible assets such as appliances. Neither is an estimate of the property's market value.
Two sets of rules
The ATO rental properties guide distinguishes Division 43 capital works from depreciating assets. Capital works rates and periods depend on construction dates, type and use. An existing property's remaining deduction period does not restart when it changes hands.
The ATO guide to depreciating assets explains restrictions on certain second-hand assets in residential rental property. Private use, acquisition timing and exceptions matter. Buying an established property does not justify either assuming every asset is deductible or treating every older asset as excluded.
A deduction is different from cash flow
Suppose an illustrative rental budget has $30,000 of income and $28,000 of cash costs, all assumed deductible for this example. Its cash surplus before tax is $2,000. Adding an assumed $3,000 non-cash deduction produces a $1,000 taxable rental loss under those simplified assumptions, while the cash surplus remains $2,000 before tax.
That example does not estimate a refund. Actual treatment depends on the owner's tax position, valid deductions and any required apportionment. Loan principal repayments, capital spending and other differences between cash costs and deductions need separate treatment.
Records and related tools
Use the property depreciation guide for source notes and record checks. Compare cash inputs using the investment property yield calculator, then use only a verified deduction in the negative gearing calculator. Keep capital works records for sale calculations because cost-base adjustments may apply.
*General information only, not tax, financial or investment advice. Ask a registered tax agent to assess a claim. *
Last updated: 12 September 2026.
Related tool: Property Depreciation Guide