Property investing
Depreciation, repairs and deductions
Capital works, the 2017 second-hand-asset trap, repairs vs. improvements, and interest deductibility — what an investor can actually claim, and the common mistakes.
- The building itself is depreciated at 2.5% a year over 40 years (capital works), not claimed as a lump sum.
- Since 2017, you generally can't depreciate plant-and-equipment assets that were already in an established property when you bought it — a common surprise.
- Repairs for damage during your ownership are immediately deductible; pre-existing defects, genuine improvements and replacing a whole item aren't.
- Investment loan interest is fully deductible — the direct opposite of an owner-occupier home loan, where it never is.
Capital works: 2.5% a year, not an immediate deduction
The cost of the building itself — construction, structural improvements, alterations and extensions — is deducted at 2.5% per year over 40 years under Division 43, not claimed as a lump sum in the year you spend the money. (Australian Taxation Office, verified 11 Aug 2026) This only applies to buildings constructed after 17 July 1985, and only once the property is rented or genuinely available for rent — you can't claim a capital works deduction for construction that hasn't been completed yet, and the total deduction over time can never exceed what construction actually cost.
The second-hand depreciation trap
This is the single most common, costly assumption error for buyers of an established rental property. Since the 9 May 2017 Federal Budget, you generally can't claim depreciation on plant-and-equipment assets that were already in the property when you bought it — an existing dishwasher, carpet, or air conditioner someone else installed. (Australian Taxation Office, verified 11 Aug 2026) A quantity surveyor's depreciation schedule for an established property will typically list very little under this category as a result. The exceptions: you bought the asset new yourself and installed it; the asset was acquired before 7:30pm AEST 9 May 2017 and installed before 1 July 2017; the property is used in a genuine property-letting business; or the owning entity is a company, a non-SMSF super fund, or a public or managed unit trust. If you're comparing an established property against a new build partly on depreciation grounds, this is the rule that makes the comparison genuinely lopsided — a new build's fixtures and fittings are all depreciable; an established property's largely aren't.
Repairs vs. improvements
Repairs that fix wear-and-tear or damage that happened while the property was rented out are immediately deductible in full. (Australian Taxation Office, verified 11 Aug 2026) Three things aren't, and have to be claimed as capital works or depreciation over time instead: initial repairs for a defect that already existed when you bought the property (even if you fix it after settlement); improvements that go beyond restoring the property to its original condition (a genuine upgrade, not a like-for-like fix); and replacing an entirety — a whole separate item, like an entire toilet or hot water system, rather than repairing part of it. Getting this distinction wrong at tax time is common and easy to get flagged for — when in doubt, ask whether you're restoring something that broke while tenanted, or making the property better/different than when you bought it.
Interest is deductible — the opposite of your own home loan
Interest on a loan used to buy a rental property, buy a depreciating asset for it, fund a deductible repair, or finance a renovation or extension, is deductible in full for the period the property is rented or genuinely available for rent — including up to 12 months of prepaid interest. (Australian Taxation Office, verified 11 Aug 2026) This is the direct inverse of an owner-occupier home loan, where interest is never deductible at all — worth keeping explicit in mind if you're weighing up paying down your own home loan against an investment purchase, since the after-tax cost of investment debt is genuinely lower than the equivalent home-loan debt for the same interest rate.
Practical checklist
Before you rely on a depreciation estimate
- Get a quantity surveyor's depreciation schedule specific to the property you're buying, not a generic estimate
- If buying an established property, check what plant-and-equipment items — if any — you'd actually be entitled to depreciate under the 2017 rules
- Keep records that distinguish repairs from improvements as you incur them, not retrospectively at tax time
- Confirm your loan structure and interest deductibility with your lender and accountant, especially if you're refinancing or redrawing
Questions for a professional
- Given this property's age and history, what can I actually claim under Division 40 and Division 43?
- Is this expense a deductible repair or a capital improvement, and how does that affect what I claim this year versus over time?
- How does my loan structure affect what interest I can deduct?
Official resources
- ATO: Depreciating assets in rental properties
- ATO: Second-hand depreciating assets
- ATO: Capital expenses
- ATO: Repair and maintenance expenses
- ATO: Interest expenses
Sources and methodology
- Capital expenses | Australian Taxation Office — Australian Taxation Office (retrieved 11 Aug 2026)
- Depreciating assets in rental properties | Australian Taxation Office — Australian Taxation Office (retrieved 11 Aug 2026)
- Second-hand depreciating assets | Australian Taxation Office — Australian Taxation Office (retrieved 11 Aug 2026)
- Repair and maintenance expenses | Australian Taxation Office — Australian Taxation Office (retrieved 11 Aug 2026)
- Interest expenses | Australian Taxation Office — Australian Taxation Office (retrieved 11 Aug 2026)
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.