Quick answer: Depreciation lets you claim the wear and tear of a rental property as a tax deduction. On a new home, there are two parts: capital works (the building itself), claimed at 2.5% a year for 40 years for residential construction started after 15 September 1987, and depreciating assets such as appliances and carpets. Since 2017, buyers of established homes generally can’t claim previously used assets, which is one reason new builds produce larger deductions.
Capital Works: The Building Itself
The ATO allows capital works deductions on residential construction that started on or after 16 September 1987 at 2.5% a year, which means you can claim for 40 years from completion (ATO).
The deduction is based on the construction cost, not what you paid. The ATO says you can’t use “the purchase price of the building and land”, “the insured cost” or “the replacement cost”. You can start claiming only when construction is completed, and the property must be rented, or available for rent (ATO).
If the actual construction cost can’t be worked out, the ATO lists a quantity surveyor, clerk of works, supervising architect or experienced builder as people who can estimate it, and the cost of getting that estimate is deductible (ATO).
Depreciating Assets: Appliances, Carpets and Fittings
Items such as carpets, floating timber floors, curtains, air conditioners and appliances are depreciating assets, claimed over their effective life (ATO).
Since 9 May 2017, buyers generally can’t claim previously used (second-hand) assets in a residential rental property (ATO). For new property there is an exception: you can claim if no one was previously entitled to a deduction for the asset and either no one lived in the property before you bought it, or you bought it within 6 months of it being built or substantially renovated (ATO, Rental properties 2026).
For a house and land package where you’re the first owner, that means the new assets are generally claimable. For an established home, the same assets usually aren’t.
Effective lives are now set by the Commissioner’s 2025 determination, which took effect on 1 October 2025 (ATO effective life determinations). Assets costing $300 or less can be claimed immediately, and assets under $1,000 can go into a low-value pool depreciated at 37.5% a year, or 18.75% in the first year (ATO).
Buying a new build to rent out?
We’ll check the price, the build contract and any commission built in before you sign.
GET MY PACKAGE CHECKED → or call 1300 446 445
Depreciation Calculator: A Worked Example
An illustrative example of the capital works deduction on a new house, using the ATO’s 2.5% rate:
| Item | Amount |
|---|---|
| Construction cost of the house (not the land) | $350,000 |
| Capital works rate | 2.5% a year |
| Annual capital works deduction | $8,750 |
| Years available | Up to 40 from completion |
Depreciating assets come on top of this. The figures are an example only: the real numbers depend on the actual construction cost, the date the home is available for rent, and the assets installed. Your accountant or quantity surveyor will work out the actual figures.
What Is a Depreciation Schedule?
A depreciation schedule (or tax depreciation report) sets out the capital works and depreciating assets you can claim each year. Quantity surveyors commonly prepare them. The Tax Practitioners Board says a quantity surveyor firm preparing tax depreciation reports for a fee must be registered under the Tax Agent Services Act (Tax Practitioners Board).
Before you order one, check the surveyor’s registration and ask whether they will inspect the property and use your building contract.
Depreciation and the 2027 Tax Changes
Depreciation reduces your taxable rental income, which matters more now that negative gearing on residential property is being limited to new builds from 1 July 2027. Read our guide to the 2027 negative gearing and CGT changes. Ask your accountant how depreciation deductions interact with your capital gain when you sell.
Questions to Ask
- What is the construction cost of the house, separate from the land?
- When will the home be completed and available for rent?
- Which fixtures and appliances are included, and are any being supplied second-hand?
- Am I the first owner, and was the property lived in before I bought it?
- Is my quantity surveyor registered with the Tax Practitioners Board?
How REIN Helps
REIN acts only for buyers of new house and land packages. We check the price, the contract and any commission built in before you sign.
REIN charges a service fee for our work, agreed in writing before you start. Where REIN receives a builder or developer commission on your purchase, we disclose it and rebate 100% (excluding GST) of it to you. The rebate typically covers the fee and more.
Common Questions
How much depreciation can I claim on a new investment property?
It depends on the construction cost and the assets installed. Capital works is claimed at 2.5% of the construction cost each year for up to 40 years, plus depreciating assets over their effective lives.
Can I claim depreciation on an established property?
You can usually claim capital works if the building qualifies, but since May 2017 you generally can’t claim previously used assets such as old carpets or appliances.
Do I need a depreciation schedule?
It isn’t compulsory, but most investors use one so they can claim the correct amounts. It’s commonly prepared by a registered quantity surveyor.
When can I start claiming depreciation?
Capital works can be claimed only once construction is complete and the property is rented or available for rent.
Before you sign anything…
Send us the package. We’ll check the price, any commission built into it and the contract terms, and tell you straight whether it stacks up. Free, no obligation.
GET MY PACKAGE CHECKED → or call 1300 446 445
Written by the REIN Editorial Team. Researched with the help of AI tools, then fact-checked against the sources below. Last updated 6 October 2026.
Reviewed by Scott Fraser, founder of REIN, licensed real estate agent (NSW) with 10 years on the developer side of house and land.
Sources
- ATO: Work out your capital works deductions, accessed 6 October 2026
- ATO: Depreciating assets in rental properties, accessed 6 October 2026
- ATO: Second-hand depreciating assets, accessed 6 October 2026
- ATO: Rental properties 2026, rental expenses, accessed 6 October 2026
- ATO: Effective life determinations, accessed 6 October 2026
- Tax Practitioners Board: TPB(GS) 21/2012, accessed 6 October 2026
About this article: This article is published by Real Estate Investors Network Pty Ltd (REIN). Statements of opinion are ours. If you believe anything in this article is inaccurate or out of date, please call us on 1300 446 445 and we will review it and correct it promptly. This is general information only. It does not take into account your objectives, financial situation or needs, and is not financial, credit, legal or tax advice. Rules differ between states and change over time. Consider seeking independent advice from a licensed professional before acting. A REIN service fee applies to our services, and where REIN receives a builder or developer commission in connection with a client’s purchase, it discloses and rebates 100% (excluding GST) of that commission to the client under its written service agreement.