• Claiming depreciation and building deductions for your rental property

    Attention

    To see the video of this transcript, go to Deductions for depreciation and building costs.

    End of attention

    Host

    As your property gets older and items within it wear out they depreciate in value. The good news is that you can claim a deduction for that and also for the building itself if it was constructed after 17 July 1985.

    Nice blinds, Michael.

    Michael Lo

    Thanks, I just bought them for $150, but I’m not quite sure how to work out what I can claim.

    Host

    Well, if the asset costs $300 or less, you claim an immediate deduction. But if it’s part of a set that cost more than $300 you can’t. As the blinds cost you $150 you get to claim the full amount straight away.

    Host

    But if Michael bought a set of four dining room chairs costing $90 each, he couldn’t claim an immediate deduction for any of them because the total cost is more than $300.

    Host

    And where you jointly own an asset which cost more than $300, you claim an immediate deduction if your share is $300 or less.

    Let’s say Phil and Sara had purchased four dining room chairs costing $90 each for their rental property; a total of $360. As they own it together, they can each claim their share of $180.

    Don’t like paperwork? Well, the good news is that other depreciating assets valued at less than $1000 can simply be grouped into a single low-value pool and depreciated together.

    That means you only need to do one annual calculation for the depreciation of all the assets in the pool.

    Host

    That should keep your tenants cool in summer.

    Michael Lo

    That’s right. The unit I installed cost $800 so I’m going to go for the low-value pool option to claim the deduction.

    Host

    And for any other assets, you work out the depreciation using the asset’s effective life – that is, how long it can be used for.

    Example

    For example, Michael’s stove which cost $1,200 has an effective life of 12 years.

    So Michael could simply claim $100 a year for 12 years.

    Where Michael uses an asset at his rental property and his home, he can only claim a deduction, for the percentage of time it’s used at the rental property.

    When you buy a rental property, you’ll need to know what the assets that came with it are worth.

    End of example

    Often you might get the values from an independent valuer or work it out for yourself but you may be required to demonstrate the basis of your valuations.

    Maybe you’d like to build a new garage or a pergola as it could generate more rent. Well, you can claim building costs at 2.5% per year over 40 years.

    So if Phil and Sara build a garage which cost $10,000 they could claim 2.5%, or $250, each year.

    You may also be able to claim deductions for the existing building and improvements.

    It’s generally 2.5% per year, but for some buildings built in the 80s it’s 4%. The previous owner may be able to advise you of the cost of construction or qualified persons such as a quantity surveyor may be able to work it out for you.

    But remember, you can only claim deductions for the period during the year that the property is rented or is available for rent.

    The Rental properties publication, which is available on the ATO website, has excellent tables identifying what are depreciating assets and what are capital works deductions for building construction expenditure. Be sure to check it out.

    If you’d like to find out more and to watch other videos in the series go to ato.gov.au/rental

      Last modified: 04 Mar 2015QC 41062