Understanding Depreciating Assets in Rental Properties

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Introduction

Depreciation is a key tax deduction for property investors, allowing you to claim deductions for the decline in value of assets within a rental property over time. Understanding how depreciating assets work can help you maximize tax benefits while staying compliant with Australian Taxation Office (ATO) guidelines.

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What Are Depreciating Assets?

Depreciating assets are items within a rental property that have a limited effective life and decline in value over time. These assets typically include:

✔ Appliances (ovens, dishwashers, air conditioners, etc.)✔ Carpets and curtains✔ Furniture✔ Hot water systems✔ Electrical fittings and security systems✔ Floating floorboards and vinyl flooring

These assets can be claimed as depreciation deductions over time, reducing your taxable rental income.

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How Depreciation Works

The ATO provides two methods for claiming depreciation on rental property assets:

1️⃣ Prime Cost Method – Deductions are evenly spread over the asset’s useful life.2️⃣ Diminishing Value Method – Higher deductions are claimed in the earlier years of an asset’s life, decreasing over time.

💡 Example:If you purchase a $5,000 air conditioner with an effective life of 10 years, you can claim depreciation either evenly ($500 per year) or at a higher rate in earlier years using the diminishing value method.

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Depreciation Restrictions

🚫 Since 9 May 2017, property investors cannot claim depreciation for second-hand assets in a rental property. You can only claim deductions for newly purchased assets or those installed in a newly built property.

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Capital Works vs Depreciation

✔ Capital works deductions apply to the construction costs of the property itself (e.g., walls, roofing, built-in cabinetry). These are claimed separately from depreciating assets at 2.5% per year over 40 years.

✔ Depreciating assets relate to removable or mechanical assets inside the property, such as furniture and appliances.

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Maximizing Tax Benefits

✅ Engage a qualified quantity surveyor to prepare a tax depreciation schedule.
✅ Claim deductions correctly using the right depreciation method.
✅ Keep records of asset purchases and installation dates for ATO compliance.

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Conclusion

Depreciation is a valuable tax deduction for rental property investors. Knowing what assets qualify and how to claim deductions can significantly reduce taxable income.

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For expert advice on rental property depreciation, tax planning, and compliance, contact Trinity Accounting Practice today.

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au

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