Depreciation allows owners of income-producing properties to claim a deduction for the decline in value of the building and its assets over time. It’s a non-cash expense, meaning you don’t actually pay out money, but it reduces your taxable income.
In Victoria, as of December 2025, depreciation is calculated differently for properties purchased before and after 1985. Properties acquired after 1985 are subject to a capital works deduction, claimed over 40 years, and depreciation on plant and equipment (items like air conditioning, ovens, and carpets) which have varying effective lives. Currently in Melbourne, particularly in the Eastern Suburbs where many properties are well-maintained, a quantity surveyor’s report is highly recommended to maximise legitimate depreciation claims. These reports, costing between $700 and $1,500, identify eligible assets and their respective depreciation rates. Sellers should be aware that claiming depreciation impacts Capital Gains Tax (CGT) when the property is sold, potentially increasing the tax payable. In 2026, prospective buyers often factor in potential depreciation benefits when evaluating a property. It’s important to note that changes announced for 2027 regarding depreciation allowances are still being finalised.
Understanding depreciation is a key component of investment property ownership and can significantly impact your tax obligations when selling.