ATO rates 2026–27 income year
Property Depreciation Calculator (Rental Property)
Two deductions, worked out separately: capital works on what it cost to build, and decline in value on the plant and equipment inside. Both are on this page, using the ATO’s own formulas — and the arithmetic is shown line by line.
1 Enter the construction cost and your assets2 See the annual deduction
Capital works — the building
Plant and equipment — what is inside
Step 2 · your result
Deduction this year
$0
capital works plus plant and equipment
- Capital works, full year
- $0
- Capital works, your claim
- $0
- Plant and equipment, year 1
- $0
- The other method would give
- $0
- Tax saved at your marginal rate
- $0
- Marginal rate used
- —
Rules, rates and formulas from the Australian Taxation Office, checked 12 October 2026. General estimate only — not tax advice.
Capital works rates
The rate is set by what was built and when construction started — not when you bought it.
| Type of construction | Rate a year | Claimed over |
|---|---|---|
| Residential building — construction started 16 September 1987 or later | 2.5% | 40 years |
| Residential building — construction started 18 July 1985 to 15 September 1987 | 4% | 25 years |
| Structural improvement — started 27 February 1992 or later | 2.5% | 40 years |
| Non-residential building (shop or office) — started 16 September 1987 or later | 2.5% | 40 years |
| Short-term accommodation (hotel, motel, units or flats) — started 27 February 1992 or later | 4% | 25 years |
| Construction started before 18 July 1985 (other than the cases above) | Not eligible | — |
The purchase price is not the construction cost. The ATO rules out the price of the building and land, the insured cost and the replacement cost. If you cannot show the real construction cost, you need a written estimate from a quantity surveyor — and the fee for that report is deductible too.
Worked example — the ATO’s own numbers
Meg bought a townhouse for $700,000 on 1 March 2026 and rented it straight out. Her quantity surveyor reported the construction cost as $500,000, with construction started in 2005 — so the 2.5% rate applies.
$500,000 × 2.5% = $12,500 a year
But the property was only used to produce income for 122 days, so her first-year claim is $12,500 × (122 ÷ 365) = $4,178. The purchase price of $700,000 never appears in the calculation.
The trap that catches most investors
Buying an established home and expecting a big depreciation schedule is the most common disappointment in this area. Since 1 July 2017, you cannot claim the decline in value of second-hand plant and equipment in a residential rental property you acquired after 7:30pm (AEST) on 9 May 2017.
Capital works usually still stands — the building keeps its 2.5% — but the carpets, blinds and appliances that came with the house generally do not.
The exceptions are narrow:
- You are carrying on a business of letting rental properties.
- You purchased the property, or the asset itself, before 7:30pm (AEST) on 9 May 2017.
- You acquired the asset before that time and installed it in the rental property before 1 July 2017.
- The property is not used to provide residential accommodation — for example it is let for commercial purposes such as a doctor’s surgery.
- The entity that owns the property is an excluded entity.
- The income-producing activity is unrelated to providing residential accommodation, such as solar panels used to generate electricity for sale.
Practical effect: on a new property you can usually claim both deductions. On an established home bought recently, expect capital works only unless you replace items with new ones — and a new item you install starts its own effective life from installation.
Diminishing value or prime cost?
A new outdoor table costing $1,500 with a five year effective life, held for the full year — the ATO’s own example:
| Method | Formula | Year 1 deduction |
|---|---|---|
| Diminishing value | $1,500 × (365 ÷ 365) × (200% ÷ 5) | $600.00 |
| Prime cost | $1,500 × (365 ÷ 365) × (100% ÷ 5) | $300.00 |
Diminishing value gives you twice as much in year one on the same asset. The trade-off is that it keeps taking a slice of a shrinking balance, so it takes longer than the effective life to write the asset off completely. Prime cost spreads the original cost evenly and finishes in exactly the effective life. See the full year-by-year comparison →
Frequently asked questions
How much can I claim for depreciation on a rental property?
It is two separate deductions added together. Capital works is usually 2.5% of the construction cost each year for 40 years (4% for 25 years on some older or short-stay buildings). Decline in value is the cost of the plant and equipment — carpets, blinds, appliances, furniture — written off over each item’s effective life. On an older property with no plant left to claim, the second deduction can be zero.
Do I work the deduction out on the purchase price?
No — and this is the mistake that costs people the most. Capital works is worked out on the construction cost, and the ATO specifically rules out the purchase price of the building and land, the insured cost and the replacement cost. If the construction cost cannot be established, you get an estimate from a quantity surveyor.
Can I claim the full year if I only rented it out for part of the year?
No. You claim the annual deduction multiplied by (days the property was used to produce income ÷ 365). The ATO’s own example: a $500,000 construction cost at 2.5% is $12,500 a year, and rented for 122 days it becomes $4,178.
Can I claim depreciation on a second-hand property?
Capital works, yes. But for plant and equipment the answer is usually no for anything you did not buy new. Since 1 July 2017 you cannot claim the decline in value of second-hand depreciating assets in a residential rental property you acquired after 7:30pm (AEST) on 9 May 2017. That is why a depreciation schedule on an established home is often worth far less than people expect.
What is the difference between diminishing value and prime cost?
Diminishing value claims a fixed percentage of the remaining value, so the deductions are larger in the early years. Prime cost claims a uniform slice of the original cost every year. Diminishing value front-loads the tax benefit, but it takes longer to write the asset off.
What are the $300 and $1,000 thresholds?
An asset costing $300 or less can be deducted in full in the year you first use it. Watch the trap: if the items are a set costing more than $300 together, you cannot split them — four dining chairs at $250 each are a $1,000 set, not four $250 assets. Assets under $1,000 can also be grouped into a low value pool.
Do I need a quantity surveyor?
If you do not have receipts for the construction costs, yes — the ATO accepts a written report from an appropriately qualified person, and the fee you pay for that report is itself deductible. A schedule usually covers 40 years of capital works and every item of plant and equipment in the property.
Does claiming depreciation affect capital gains tax?
Yes. Capital works deductions form part of the cost base of the property for CGT, so when you sell you have to take the deductions you claimed into account. You can still be ahead, but it is not free money — plan for it.
Keep reading
- Capital works deductions — every rate, the 40 year rule and how the CGT cost base changes
- Diminishing value vs prime cost — the two formulas, side by side, year by year
- Negative gearing calculator — put the deduction into your after-tax cost
- Land tax calculator — NSW, VIC and QLD