Residential Tax Deprecation – legislations, categories for claiming deprecation and depreciable assets

Depreciation on an investment property is a significant tax-deductible expense. The investment property must be accurately assessed in order to develop a depreciation report to claim maximum deductions.

According to the ATO, there are two categories of depreciating assets under which property investors are eligible to claim deductions for

• Capital works deductions
• Plant and equipment deductions

Capital Works Deductions:

A residential property investor can claim Capital Works Deductions on the depreciation of the structural elements of the building as well as the fixed items within the property.

A property investor is also eligible to claim construction costs for improvements or alterations made to their income-producing property.

Legislation:

Property investors owning residential properties built after 15 September 1987 can claim a capital works deduction at a percentage rate of 2.5% per annum over 40 years. However, if construction commenced between 21 July 1982 and 15 September 1987, it can be depreciated at a rate of 2.5% or 4%.

Construction improvements like:

• building extensions such as adding a room or a deck;
• altering a building such as adding or removing an internal wall;
• structural improvements such as adding a carport or retaining wall.

Plant and Equipment Deductions:

Assets in a residential property that are easily removable or are mechanical in nature can be claimed for depreciation for wear and tear.

Legislation:

The federal Government in November 2017 issued changes to the ways depreciation for plant and equipment can be claimed by residential property investors.

Previously used plant and equipment assets like easily removable items such as smoke alarms, hot water systems found in a second hand or previously owner-occupied residential investment properties post 7:30pm on the 9^th of May 2017 - will not be able to claim depreciation.