Understanding Depreciation When Your Home Becomes a Rental Property

Turning your principal place of residence (PPOR) into a rental can provide valuable tax benefits—if you know how to claim depreciation correctly. This guide is designed to help property investors maximize their deductions and ensure compliance.

Can You Claim Depreciation on Your PPOR?

Depreciation deductions apply only to properties that generate income. While your PPOR is off-limits for such claims, any property used as a rental qualifies for depreciation benefits.

Transitioning from PPOR to Rental

Once your home stops serving as your primary residence and becomes a rental, you can start claiming depreciation. Keep in mind that you cannot claim deductions for the period when you lived in the property. However, you might be able to back-claim depreciation for a limited number of years after it begins generating income.

Partial Rental Use of Your Home

If only part of your PPOR, such as a granny flat or annex, is rented out, you can claim depreciation solely for that area. The allowable claim must be apportioned based on how much of the property is used to earn rental income.

Types of Depreciation Deductions

There are two main categories of depreciation:

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• Plant and Equipment: This covers removable items like appliances.
• Capital Works: This applies to structural components such as walls and roofs. For properties constructed after 15 September 1987, capital works deductions can be claimed for up to 40 years.

Getting a Depreciation Schedule

Hiring a qualified quantity surveyor to prepare a depreciation schedule can ensure that you capture every eligible deduction. This document outlines the timing and amount of each deduction, making tax preparation simpler and more efficient.

"Depreciation schedules are not only crucial for compliance but also essential for securing maximum tax benefits." – Expert Property Advisor

Conclusion

Effective depreciation planning can make a significant difference in your overall tax strategy when your home converts to a rental property. Understanding when and how to claim allowable deductions is key. For personalized advice and more insights on property investment strategies, consider joining our community at Investor Profile.

References

• Australian Taxation Office. "Rental Properties 2022." Accessed October 10, 2023.
• Investopedia. "How Depreciation Works on a Rental Property." Accessed October 10, 2023.
• Domain. "The Benefits of a Professional Depreciation Schedule." Accessed October 10, 2023.