Claiming depreciation and building deductions for your rental property
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Claiming depreciation and building deductions for your rental property


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. Thanks, I just bought these for $150, but
I’m not quite sure how to work out what I can claim. 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. That’s great. 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. 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. That should keep your tenants cool in summer. That’s right. The unit I installed cost $800
so I’m going to go for the low-value pool option to claim the deductions. 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. 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.
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.

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