Depreciation on a second-hand property: the 2017 rules

For residential rental property acquired at or after 7.30 pm on 9 May 2017, the decline in value of previously used depreciating assets (the plant and equipment that came with the property) is generally no longer deductible (section 40-27 of the Income Tax Assessment Act 1997). Nor is plant that was used while the property was your home, even plant you bought new: the plant in a home you lived in before renting it out, or an item you bought while you lived there. Plant used for a private purpose in a way that is not occasional, as in a holiday rental its owner also uses regularly, is generally caught too, for the income year that happens in and every later one. Plant held before 9 May 2017 is still deductible if the property was let, or available for rent, by 30 June 2017. The page on a property built in 2017 counts that year's days on each side of the change.

The rule applies to individuals, most trusts and self-managed superannuation funds. Companies, other superannuation funds, managed investment trusts and some public unit trusts are excepted, as is property used in carrying on a business.

Capital works deductions on the building are unaffected: if construction began after 15 September 1987 you can claim 2.5% of the original construction cost a year for what remains of its 40 years. For a property built in 2010 and bought in the 2024–25 income year, taking it as finished on 30 June 2010 as our year pages do, that is 26 more income years of deductions, from 2024–25 to 2049–50. What that gives each year follows what the building cost to construct, which turns on where it is and what kind of dwelling it is: the state pages give the cost by year built for each kind, such as a house in Tasmania, a townhouse in Western Australia or an apartment in South Australia.

Plant you buy new for the property while it is let, such as a dishwasher, and never use in your own home, is deductible from the day it is installed. Renovations you carry out are capital works, deductible from their completion, and what a renovation takes out is dealt with in the year it goes.

Plant in a property bought new from a developer is generally not treated as previously used if nobody lived in it before you bought it, or if the developer let it only in the six months after it was completed and sold it within that time. If you then live in it yourself before renting it out, its plant is caught by the rule for your own home.

The value of the previously used plant still matters. When an item is sold or scrapped, the decline in value you could not claim makes a capital gain or loss (CGT event K7) instead of a deduction. A schedule therefore still values it and lists it separately, marked as not deductible.