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Rental property depreciation

What is depreciation?

You can claim a deduction for the decline in value of certain items, known as depreciation, that you acquired as part of the purchase of your property or that you subsequently purchased for your property.

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Examples of depreciating assets are freestanding furniture, stoves, washing machines and television sets.

How is depreciation calculated?

The decline in value of a depreciating asset starts when you first use it, or install it ready for use. This is known as the depreciating asset’s start time. For example, if you purchased an asset on 1 January, you can claim half of the first income year’s decline in value.

Your deduction is reduced to the extent your use of the asset is for other than a taxable purpose.

For assets costing $300 or less, you can claim an immediate deduction for the entire cost. You can’t do this if the asset is one of a set of assets that together cost more than $300 – for example, if you buy four dining chairs each costing $250, you can’t treat them as separate assets to claim an immediate deduction.

To work out the decline in value of a depreciating asset, you need to know its effective life.  The effective life is how many years you can use the asset for a taxable purpose. For most depreciating assets, you can work out the effective life using an ATO table.

To work out your deduction for depreciation, use either the:

  • prime cost method – this means the value of the depreciating asset decreases uniformly over its effective life, or
  • diminishing cost method – this means the decline in value each year is a constant proportion of the remaining value.

For further information on what deductions can be claimed for rental properties, download a Griffin & Associates rental property checklist

Source: Australian Taxation Office

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