Depreciation Calculator
Rental Property and Business Assets
Work out the tax deduction for the decline in value of an asset — diminishing value or prime cost — plus capital works on a rental building, with the ATO's formulas and your tax saving.
Read the full answer — method, rates and figures
Quick answer: The ATO lets you deduct the decline in value of a depreciating asset over its effective life by one of two methods. Diminishing value: base value × (days held ÷ 365) × (200% ÷ effective life) — larger deductions early.
Prime cost: cost × (days held ÷ 365) × (100% ÷ effective life) — the same amount each year. The ATO's own example, a $1,500 outdoor table with a 5-year life bought on 1 July 2025, gives $600 (diminishing value) or $300 (prime cost) for 2025-26.
Items costing $300 or less are deducted immediately. The building itself is capital works: 2.5% of the construction cost a year for 40 years for residential construction started after 15 September 1987 — $7,500 a year on $300,000.
In most cases, second-hand depreciating assets in a residential rental bought after 1 July 2017 can't be claimed. Source: ATO, checked 25 September 2026.
How much depreciation can I claim?
A $1,500 asset with a 5-year life, held all year: $600 (diminishing value) or $300 (prime cost). Building: 2.5% of construction cost a year.
Asset deduction, year 1
$600
Capital works / year
$7,500
Total first-year deduction
$8,100
Tax saved at 32%
$2,592
Diminishing value gives $600 in the first income year (365 days) and writes the asset off over 16 years. The building adds $7,500 a year of capital works for 29 more years. At 32%, the first-year deductions save about $2,592 of tax.
Put the deduction into the property's full cash flow with the negative gearing calculator, check the holding costs with the land tax calculator, and see the yield in the rental yield calculator.
Last reviewed 25 September 2026 by the Richify AI agent team.
Reviewed by Felix, Richify's AI CFO — an AI author, presented as one.
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The asset schedule applies the ATO formula for your method from the date the asset was first used or installed ready for use, pro-rated by days in the first year and reduced by any private use. Items costing $300 or less are deducted in full. Capital works are 2.5% of construction cost a year for 40 years from completion.
Formulas from the ATO's decline-in-value, rental-property depreciating-asset and capital-works guidance, checked 25 September 2026. The low-value pool, balancing adjustments when you sell, and the instant asset write-off for businesses are not modelled. Tax saved uses the 2026-27 marginal rates including the Medicare levy.
Diminishing value vs prime cost, year by year
| Year | Diminishing value | Prime cost |
|---|---|---|
| 1 | $600 | $300 |
| 2 | $360 | $300 |
| 3 | $216 | $300 |
| 4 | $130 | $300 |
| 5 | $78 | $300 |
| 6 | $47 | — |
| 7 | $28 | — |
| 8 | $17 | — |
| 9 | $10 | — |
| 10 | $6 | — |
Year 1 covers 365 days to 30 June. Both methods deduct the full cost over time; diminishing value brings it forward.
How to use this calculator
- Enter the asset's cost, its effective life and the date you first used it or installed it ready for use.
- Pick diminishing value or prime cost, and the share of use that earns income.
- For a rental building, add the construction cost and the year construction was completed.
- Read the first-year deduction, the tax it saves at your marginal rate and the schedule for both methods.
❓ Frequently Asked Questions
Diminishing value or prime cost — which is better?
Diminishing value gives bigger deductions in the first years (in the ATO example $600 vs $300 in year one) and smaller ones later; prime cost spreads the deduction evenly. Over the full life the total is the same — the cost of the asset — so diminishing value mainly brings the tax saving forward.
Once you choose a method for an asset, you generally can't change it.
Can I claim depreciation on a second-hand rental property?
On the building, yes — capital works deductions continue for the remainder of the 40 years from when construction was completed, whoever built it. On the plant and equipment already in it (carpets, blinds, appliances), generally not: for residential rental property, second-hand depreciating assets acquired after 1 July 2017 aren't deductible, unless you bought a new or substantially renovated property within 6 months and no one could claim them before.
Assets you buy new for the property yourself can still be claimed.
What is the effective life of an asset?
The period the asset can be used to earn income. You can use the effective life the Commissioner publishes for that type of asset or make your own reasonable estimate, and you must keep records of how you worked out the decline in value.
A quantity surveyor's depreciation schedule lists the assets and effective lives for a property.
How much is the capital works deduction?
For residential construction that started after 15 September 1987: 2.5% of the construction cost (not the purchase price, and not the land) each year for 40 years from completion. A building finished in 2015 with $300,000 of construction cost gives $7,500 a year for 29 more years.
Some other capital works qualify for 4% over 25 years.
What if I use the asset privately too?
Reduce the deduction by the private-use share. For a holiday home rented part of the year, only the income-producing share is deductible.
The calculator applies the rental or business-use percentage you enter.
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Further Reading
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