Can You Claim Depreciation on a New Home You Build?

When you buy a property, its structural value and assets will depreciate over time due to wear and tear. Owners can make depreciation claims to offset the value lost due to depreciation and enjoy a reduction in taxable income.

Owning property does not automatically make you eligible to claim depreciation - your ability to claim depreciation will depend on how the property is used.

When Can You Claim Depreciation on a Home You Own?

One of the biggest questions for first-time homeowners is whether they can claim depreciation on a new home they have built.

The general rule is that depreciation can only be claimed on a new home build (or any property for that matter) if the property is used to generate income. 

New home builds for investment (i.e. rental properties) are the best example. If you have built a new home and are planning to rent it out as an investment property, you will be eligible to claim depreciation for it as long as it is used for that purpose.

Using a newly built home as your primary residence generally makes you ineligible to claim depreciation. However, there are exceptions to this.

If a section of your home is used to generate income, you may be able to claim partial depreciation. Examples include:

• Using an area of your home as a place of business (such as a family daycare)
• Leasing out a section of your home
• Short-term rentals (using the home as a holiday rental)

In such cases, the amount of depreciation that can be claimed will be based on the percentage of the property that is used for income-generating activities.

The Australian Taxation Office (ATO) has strict criteria for claiming partial depreciation, and you may be required to submit proof to show how your home is being used to generate income.

How Depreciation is Calculated for a New Home BuilD

Owners of a new home build can claim two forms of depreciation: capital works deductions and plant and equipment deductions.

Capital works refers to the structure and permanent fixtures of the home - walls, doors, insulation, skylights, and bathroom fixtures.

Floor coverings, ducted air conditioning units for the whole home, gym equipment installed in the home, and ceiling fans are examples of plant and equipment that can be easily removed.

You can claim depreciation on new home builds at 2.5 per cent over 40 years, under capital works provisions. Plant and equipment depreciation claims will be based on the asset’s effective life in line with the ATO’s estimates. Plant and equipment depreciation is usually claimed under the diminishing value method.

A new home build valued at $700,000 can claim depreciation according to the following estimates:

The Process for Claiming Depreciation on Your Home

Claiming depreciation on a new home, whether it is partially or entirely used to generate income, will require a depreciation schedule.

You will need to work with a Quantity Surveyor to obtain a depreciation schedule. Quantity surveyors will assess the property’s value and determine the amount of depreciation that can be claimed. 

Once created, the depreciation schedule will outline the amount of tax deductions that can be claimed each year. 

In short, you can claim depreciation on a new home build as long as it is used to generate income. If your new home is used solely as a private residence, you cannot claim depreciation. 

As a multi-award-winning home builder in Townsville, John Munro Builder can help you create a stunning new home build for residence, investment, or as a place of business. Get in touch with our team today to find out how we can build the home of your dreams.