Rental properties come in all shapes and sizes, from studio apartments in the city to rural homesteads.
The length of time that you can depreciate your rental property depends on several things. The key determining factor is the age of the property, along with its fixtures, fittings and assets. Improvements such as renovations can also stretch the length of time you can claim depreciation.
How long do capital works deductions last?
The first element of a depreciation claim is capital works deductions. This refers to only the structural part of your rental property and fixed fittings that depreciate at an annual rate of 2.5 per cent. Some of the most common capital works deductions are found from the building’s walls, fencing, doors, built-in cupboards and roofing. On average, capital works deductions make up 85 to 90 per cent of the total claim available.
Any residential building that was constructed after 15 September 1987 can take advantage of capital works deductions for forty years.
However, this depends on the property’s construction and purchase date. If a property was built in 1990 and you purchased it second-hand in 2010, you can claim capital works deductions for twenty years or until 2030. Whereas, if you purchased a brand-new investment property in 2020 you can take advantage of capital works deductions for the full forty-year period and claim this lucrative deduction until 2060.
If your rental property was constructed before 1987, don’t rule capital works deductions out just yet. Older properties can still get capital works deductions back in their pocket if the property has undergone a renovation. For example, if a rental property was built in 1980, and the owner completed a bathroom renovation in 2005, they can claim capital works deductions on the bathroom until 2045.
How long can you depreciate plant and equipment assets?
This is where determining ‘how long’ you can depreciate a rental property gets a little more complicated. Plant and equipment depreciation are claimed on the property’s mechanical and easily removable assets. Some common examples include hot water systems, carpet, blinds and ceiling fans.
Each plant and equipment asset has its own dedicated effective life set by the Australian Taxation Office (ATO). Each asset also has its own diminishing value and prime cost depreciation rate, rather than a set rate.
The effective life of an asset determines how long you can depreciate it. Under the prime cost method, you claim an even amount each year. While the diminishing value method results in a higher claim in earlier years.
Different types of plant and equipment assets that fall under the same category can depreciate for different periods. The below table demonstrates how this works for some floor coverings.
Can you still claim depreciation for your rental property after living in it?
You can claim depreciation on your investment property after you lived in it, but the length of time you can depreciate it does change.
The time you lived in it counts towards the forty-year lifespan of capital works deductions. For example, if a property was constructed in 2000 and you moved into it then made it an investment property ten years later in 2010, you will claim capital works until 2040 (thirty years) on the original structure.
If you made a capital improvement like an extension, this changes. The capital works on the new extension would restart from the improvement date, while the original structure will continue to depreciate from the 2000 start date.
Plant and equipment depreciation deductions work completely differently once you have lived in the property. Due to 2017 legislation changes ‘previously used’ plant and equipment assets in residential properties can’t be depreciated. This means you can’t claim depreciation on any of the plant and equipment assets that were in the property when you lived in it. However, new assets you purchase for the property once it’s an investment can still be depreciated for their effective lives.
Claim depreciation with the specialist
A tax depreciation schedule lasts the lifetime of the property, so it’s important to get it right from the very beginning.
To start claiming depreciation with the leading specialist in the industry, call BMT Tax Depreciation on 1300 728 726 or Request a Quote.