How much depreciation can I claim on my rental property?

Four things: what the building cost to construct, when its construction began, which of its plant is new to you, and your own dates. What the property is worth, or what you paid for it, matters less than you might expect: the building's deduction follows what it cost to build, not its price.

The building comes under Division 43 of the Income Tax Assessment Act 1997. Residential construction begun after 15 September 1987 is deducted at 2.5% of its construction cost a year, for 40 years from completion. Construction begun between 18 July 1985 and that day was deducted at 4% over 25 years, which has now run out, and construction begun before 18 July 1985 is not deductible; structural improvements such as driveways and fences count if they were begun after 26 February 1992. A buyer of an established property claims what is left of the 40 years, and each renovation begun after 15 September 1987, whoever carried it out, has 40 years of its own from its completion. On the 2.5% rule the years run out in turn: a house built in 1988, the first whole year of it, has its last in 2027–28, and one built in each year after it a year later.

The plant comes under Division 40: carpet, blinds, appliances, hot water and air conditioning, each deducted over its effective life. Plant new to you, in a property bought new or bought for it while it is let, is deductible. Plant that came with a second-hand residential property acquired since 7.30 pm on 9 May 2017, or that was used while the property was your home, generally is not (section 40-27). The rule reaches individuals, most trusts and self-managed super funds, though not companies, so for most buyers of an established property the plant they can claim is what they add.

Your own dates set when the deductions start: the day after settlement, or the day the property is first available for rent if that is later. The first income year counts only the days from then to 30 June.

A standard single-storey brick veneer house of 200 m², built in Queensland in 2015, cost about $217,272 to construct in our cost database, not counting its plant. Its capital works deduction is 2.5% of that, about $5,432 a year. Its 40 years are counted from completion, taken as 30 June 2015, so from the 2026–27 income year 29 of them are left.

The same house cost about $188,312 to build in Western Australia, $216,843 in Tasmania and $361,391 in the Northern Territory: a deduction of about $4,708, $5,421 and $9,035 a year. The law is the same in every state and territory; what it cost to build is not, and a bigger, better-finished or two-storey house cost more again. Nor is it the same from one year to the next. In our cost database the standard house's rate per m² rose 20% into 1989, the steepest of the 40 year-on-year changes since 1985: the same house built in 1989 cost about $89,060 to construct at the national rate, less its plant, against $73,608 for one built a year before, and its deduction is larger in the same proportion in every one of its 40 years.

Plant the owner adds is deducted on its own. New carpet laid through the house while it is let cost about $4,492 at 2025 prices in our cost database; with an effective life of 8 years, it deducts $1,123 in its first full year under diminishing value, or $562 under prime cost. The carpet and other plant that came with the house are previously used: for an individual buyer they are generally not deductible, though a schedule still lists their value.

A deduction reduces taxable income, not the tax itself, so its worth to you is the deduction times your marginal rate. What a particular property gives turns on its own cost, dates and plant, which is what a schedule works out from its documents. For your own, the year pages give the rate and the years left for each year built since 1985, and each state's page what a house, townhouse, unit and apartment cost to build there, year by year.

Most buyers of established property do not know what the building cost to construct. The ATO accepts an estimate made by an appropriately qualified person (TR 97/25). Estimates are made from the floor area, the type of construction, the finish and the year built, using historic construction rates for the state; the report says which figures are estimates and how each was made.