What Is Depreciation?
Depreciation is a term that often comes up when people start learning about property investing, tax, and negative gearing — but it’s not always clearly explained.
In simple terms, depreciation is a way of recognising that certain assets lose value over time due to wear and tear.
Understanding depreciation helps you see how it affects the tax side of property investment and why it’s often discussed alongside strategies like negative gearing.
Depreciation Explained in Simple Terms
When you own something that wears out over time — such as a building or appliances — its value doesn’t stay the same forever.
Depreciation is the tax system’s way of recognising that gradual loss in value.
Instead of claiming the full cost of an asset upfront, depreciation allows you to claim a portion of that cost over several years.
What Can Be Depreciated in a Property?
In an investment property, depreciation may apply to:
- The building structure itself (where eligible)
- Fixtures and fittings such as ovens, air conditioners, carpets, and blinds
- Other assets that wear out over time
Not every property or asset qualifies in the same way, and eligibility depends on factors such as the age of the property and current tax rules.
Depreciation Is a Non-Cash Deduction
One of the most important things to understand about depreciation is that it’s a non-cash deduction.
That means you may be able to claim it for tax purposes without actually paying money out of pocket during the year.
This is why depreciation is often described as improving the after-tax position of an investment.
How Depreciation Affects Tax
Depreciation can reduce your taxable income.
If you’re earning income from other sources (such as a salary), depreciation deductions may reduce the amount of tax you pay overall.
It’s important to note that depreciation reduces tax — it doesn’t put cash directly into your bank account.
Depreciation Is Often Strongest in the Early Years
Depreciation deductions are usually higher in the early years of an asset’s life.
Over time, assets are gradually depreciated and the deductible amount reduces.
This is why depreciation benefits often decline as a property gets older.
Depreciation Needs to Be Calculated Correctly
Depreciation claims must follow tax rules and be calculated correctly.
This often involves a depreciation schedule prepared by a qualified professional.
Tax professionals such as
The Accountants
can help ensure depreciation is claimed correctly and appropriately for your situation.
Depreciation Is Only One Part of the Picture
While depreciation can improve the tax outcome of an investment, it doesn’t change the underlying cash flow.
You still need to be able to afford the property and manage the ongoing costs.
Depreciation works best when it supports a sound investment and finance structure — not when it’s relied on in isolation.
How Depreciation Fits Into Property Investing
Depreciation is often discussed alongside strategies like negative gearing because it can increase the size of a tax-deductible loss without increasing cash costs.
Understanding depreciation helps investors make more informed decisions about property type, holding costs, and long-term strategy.
How Chase Helps With the Finance Side
While depreciation is a tax concept, the finance structure behind a property investment still determines affordability.
Chase Douglas has extensive experience in mortgage lending and helps investors understand how loan structure, cash flow, and tax considerations work together.
Chase focuses on ensuring the finance side supports your overall strategy — not just the tax outcome.
Want to Understand How This Applies to You?
Depreciation can be a valuable part of a property investment strategy when it’s properly understood.
👉 Book a conversation with Chase Douglas to understand how investment lending and tax considerations like depreciation fit into your broader financial plan.
The best decisions start with clear understanding.
