Depreciation: Old vs New Properties

Property investors often ask about the depreciation potential of older properties. Many investors assume their property isn't worth getting a depreciation report completed due to its age. While it is true that newer properties contain more deductions than old properties, it is always worth getting some advice about the depreciation potential of an old property.

Old Properties

Depreciation on the structure of a building is governed by dates the construction was commenced. This may mean that a property may not be eligible to claim depreciation on the original structure. However investors will still be able to make a claim on the fixtures and fittings within the building. All eligible assets are valued at the time of settlement with their effective lives assigned to each asset regardless of their age. Older properties that have had structural renovations are also eligible to claim depreciation on the work completed; even if this work was carried out by a previous owner.

New Properties

New properties are eligible to claim depreciation on the building structure and the fixtures and fittings in their property. The effective life of a new building for Australian Taxation Office (ATO) purposes is 40 years (some exceptions apply). This means a brand new property is able to claim the entire construction cost over the life of the property. Properties that are not brand new can claim the residual of the 40 years. For example, if an investment property is 5 years old and its owner wants to claim depreciation on it, they have 35 years left of deductions to claim.

Depreciation Differences

FAQ: Why should I get a 40 year depreciation report? Some companies only provide 1 year, 5 year or 10 year reports.

Because a property depreciates for up to 40 years, it may be worth getting a 40 year report so you have all of the information until everything has fully depreciated. This means you only need to have the report prepared once and only have to pay the fee once (Note: if major renovations are undertaken after you have a depreciation report completed it may be worthwhile updating your report).

Some other depreciation reports only last for 1, 5 or 10 years - meaning you either have to pay to get a new report or make complex calculations yourself each year.

Mortgage House would like to thank BMT Tax Depreciation Pty Ltd for this article.

If you are interested in purchasing an investment property, Mortgage House can assist you with the following: