The 2017 Depreciation Rule Most Property Investors Still Get Wrong
Since 2017, you generally can't depreciate second-hand plant and equipment in an established rental. Here's what changed, what you can still claim, and how to track it.
Depreciation is one of the biggest non-cash deductions an Australian property investor can claim — and it's also the one most commonly misunderstood since the rules changed in 2017. If you bought an established home to rent out, you may be quietly over-claiming, or leaving money on the table, because of a rule that trips up even experienced investors.
Here's what actually changed, and how to tell what you can still deduct.
Two kinds of depreciation
Property depreciation comes in two separate buckets, and they're treated very differently:
- Division 43 — capital works. The building itself: the structure, walls, roof, and permanently fixed items. Claimed at 2.5% a year over 40 years for eligible residential construction (generally built after 15 September 1987).
- Division 40 — plant and equipment. The removable, mechanical assets inside: ovens, dishwashers, carpet, blinds, air conditioners, hot water systems. These are depreciated over each asset's effective life.
The 2017 change only touched the second bucket — Division 40.
What changed in 2017
From the 2017 rules (effective for most investors from 1 July 2017), you generally can no longer claim depreciation on previously used plant and equipment in a second-hand residential rental property.
In plain terms: if you buy an established house or unit that already has an oven, carpet and an air conditioner installed, you generally can't depreciate those existing items — even though they're clearly wearing out.
The intent was to stop successive owners from each depreciating the same second-hand assets. The effect is that a lot of investors who bought established property after mid-2017 have far less Division 40 to claim than they expect.
What you can still claim
This is where the misunderstanding costs people money — because the 2017 rule is narrower than "no more depreciation." You can still claim plenty:
| What | Still deductible? |
|---|---|
| The building structure (Division 43 capital works) | Yes — 2.5% a year, if construction is eligible |
| New assets you buy and install yourself | Yes — a new dishwasher, carpet or aircon you install is depreciable |
| Plant and equipment in a brand-new property you bought new | Yes |
| Previously used plant and equipment in a second-hand residential rental | Generally no |
So the building itself keeps depreciating, and every new asset you install from your own pocket starts its own depreciation schedule. The rule takes away the inherited second-hand items — not your ongoing investment in the property.
There are also carve-outs and timing details — for example, contracts entered into before budget night on 9 May 2017, and non-residential (commercial) property, are treated differently. Whether a specific asset qualifies is exactly the kind of thing a quantity surveyor's depreciation schedule is built to answer.
A quick example
You buy an established three-bedroom house in 2026 and rent it out. It has an existing oven, carpet, blinds and a split-system air conditioner.
- The existing oven, carpet, blinds and aircon: generally not depreciable (second-hand plant and equipment).
- The building structure: still depreciable under Division 43 at 2.5% a year, assuming eligible construction.
- Six months in, you replace the worn carpet with new carpet: that new carpet is depreciable, on its own schedule from the day you install it.
Same property, three different answers — which is why keeping the detail straight matters.
How to keep it straight
The practical takeaway is that depreciation isn't one line on your return — it's a running schedule of the building plus every asset you add over the years. The investors who claim it correctly are the ones who:
- Get a depreciation schedule from a quantity surveyor for the building (Division 43) and any qualifying assets.
- Record every new asset they install, with the date and cost, so it can start depreciating.
- Keep those records for five years, alongside the rest of their rental expenses.
BrickTrack keeps your property records — purchases, improvements and expenses — organised in one place per property, so when it's time to hand everything to your accountant or quantity surveyor, the history is already there rather than scattered across receipts and emails.
Want the full picture of what's deductible? Read our guide on how to track rental property expenses for your ATO return.
This article is general information, not tax advice. Depreciation rules have important exceptions and depend on your circumstances and when you bought — check with a registered quantity surveyor, your accountant, or the ATO before you claim.