How Much Depreciation Can You Claim on a New House?
The amount of depreciation you can claim on a newly built house is determined by what that house cost to build. The more expensive the build was, the more depreciation there is in the building itself.
Then there are the Assets or inclusions. These are things like appliances, floor coverings, hot water heaters, air con etc. These can be depreciated in a brand new house and boost the depreciation in the early years.
The more Assets in a house, the higher the depreciation in the early years. If a house has, say seven split system air cons (yes, we have seen this) that will boost the depreciation in those early years.
Why New Houses Have Higher Depreciation Claims
Brand new houses provide more depreciation because the building AND the Assets can be depreciated. But they must be ‘brand new’ when rented out.
‘Brand new’ means nobody has used them – not even you.
If the Assets are not ‘brand new’ when you rent out the property, you can’t depreciate them.
If you build a house and live in it for a while before renting it out, the Assets are not brand new.
If you buy a recently built house and somebody has lived there, the Assets are not brand new.
Capital Works and Plant & Equipment Depreciation
There are few terms in the depreciation world that are interchangeable.
Capital Works refers to the building itself: the wall, roof, doors, windows, tiles, plumbing, electrics etc. This is sometimes also referred to as Division 43. And also the ‘Building Allowance.
Capital Works are claimed at 2.5% per year for 40 years from when a house is built.
Plant and Equipment also has a few different names. These are the items that depreciate more quickly than the building and can be claimed faster e.g. appliances, floor coverings, hot water heaters, air con etc. Division 40 is another name for these, as is Depreciating Assets.
On a tax return, they are called Capital Allowances.
Builders refer to them as ‘inclusions’.
If your tenants are the first people to live in the property, you can claim depreciation on the Capital Works AND the Plant & Equipment.
What Counts as a New Property for Depreciation Purposes?
A new property, one where the building and the Assets can be depreciated, is one that nobody has lived in before you installed tenants.
Perhaps you built the house and made it available to rent immediately after completion.
Or you might have bought it from a builder who sold it upon completion.
You may even have bought it from somebody else who had the property built, took delivery of it and then immediately sold it.
Whatever the scenario, the important thing is that nobody had lived in the property before you bought it and made the property available to let.
When Should You Get a Depreciation Schedule for a New House?
It is always best to get a Depreciation Schedule done before you start to rent out the property.
A Depreciation Schedule is sort of a snap shot of a property at the start of it being rented out. All properties occasionally need to have work done to them.
Perhaps a tenant requests an additional air con unit. Maybe you elect to put down artificial grass instead of a lawn that is struggling. These additions can be depreciated and it is so much easier if there is an existing Depreciation Schedule than can be updated.
New House Depreciation Examples
How much depreciation you can claim on a new house depends on how much you spent on the construction. This includes your contract price, variations and anything you’ve paid for outside of the contract (excluding demolition and soft landscaping).
Here is a general guide you can use to estimate your possible depreciation. For a more accurate estimate, get in touch with our team. Email enquiries@depreciator.com.au or call us on 1300660033.
The figures below are based on a typical 3-4 bedroom project home.
| Construction Cost (excluding land) | Depreciation 1st Full Year | 5 Year Depreciation |
| $200,000 | $8,100 | $38,800 |
| $250,000 | $10,250 | $47,750 |
| $300,000 | $11,850 | $57,800 |
| $350,000 | $13,700 | $65,400 |
| $400,000 | $15,700 | $72,700 |
| $450,000 | $17,500 | $80,800 |
| $500,000 | $20,200 | $91,000 |
| $600,000 | $23,000 | $115,000 |
For estimates on newly built townhouses or apartments, please click here.
How a Quantity Surveyor Calculates New House Depreciation
In the legislation that governs all things depreciation related, it states that if the actual costs are known, they must be used.
In the case of a brand new build, the actual total of the build is always available on a building contract. So the building contract is the starting point for a QS.
The building contract will list the Assets or inclusions e.g. appliances, hot water, air con, floor coverings etc. But very rarely are there costs for these items. A QS will ascribe an installed retail value to each of the Assets so they can be depreciated individually – and quickly.
The total Asset value is deducted from the contract total and the balance is the Capital Works amount. This is depreciated at 2.5% per year.
Frequently Asked Questions
How much depreciation can I claim on a new house?
The amount of depreciation you can claim on a newly built house is determined by what that house cost to build. As an example, if you’ve spent $450,000 on a brand new home where your tenants are the first people to live in the property, you will be able to claim about $17,500 in the first full year. Over 5 years, you will be able to claim about $80,000. That’s too much NOT to claim!
Can you claim depreciation on a newly built investment property?
Yes. If your tenants are the first people to live in the property, you can claim depreciation on the building itself (sometimes called Division 43), as well as the Assets in the property (also called Division 40). Assets include your kitchen appliances, carpet, curtains, hot water system etc.
Why do new houses have higher depreciation deductions?
New houses have higher depreciation deductions because you can also claim depreciation on the depreciating Assets, on top of the depreciation you can claim on the building itself. Assets include your kitchen appliances, carpet, curtains, hot water system etc.
For example, the depreciation on a new build house where you’ve spent $350K on the build will give you about $13.7K in depreciation in the first full year.
If you were to live in that house first, you can only claim depreciation on the building allowance. This would reduce the depreciation you can claim to about $8K in the first full year.
When should I get a depreciation schedule for a new house?
If you’re renting out the property straight from settlement, it’s a good idea to get your Depreciation Schedule once settlement takes place. By that point, you should know the total cost of the build (including your contract price, variations, and anything you’ve paid for outside of the contract).
How long can you claim depreciation on a new house?
The ATO has set the effective life of a residential house at 40 years. You can claim depreciation on the house as long as you are renting it out and it is generating a taxable income.
