Depreciation the investor’s best friend. Depreciation is sadly often missed by investors as a legitimate tax deduction. The Tax office admits that 52% of investors don't claim what they are legally entitled to. Don't let it happen to you! The reason most miss depreciation as a tax deduction is that there is no cash outlay required to legitimatly claim it, and YES you can claim it as a tax deduction even if you are making a profit after expenses from your investment. Depreciation allowances occurs in 3 ways as described below, as a rule of thumb the newer the property the more depreciation allowances, most property's will have a combined depreciation allowable as a tax deduction of between $3,000 and $25,000 (even more in some cases) if your tax rate is 46.5% (including medicare levy) this means that the AT0 will refund you between about $1,400 and $12,000 even if the property is  cash flow positive, that's what I call a great incentive! So how do you find what you are legally allowed to claim for depreciation? Employ a licensed quantity surveyor, they will create a depreciation schedule (cost around $450)the schedule will map out what you are legally allowed to claim, the ATO will accept the schedule to be a true guide to your allowable depreciation, give the schedule to your accountant who will keep it for deductions in this year and in years to come and should update it for you should you add improvements etc. to the property. 1). Depreciation of the Building, Your quantity surveyor determines the cost of the building in the year it was built, they also include items such as in ground pools spas and saunas, common areas etc. You can then legitimately claim 2.5% of that cost that amount each year for the first 40 years of the buildings life or 4% of the cost of the building for 25 years depending on which year the building was constructed and what the building is classified as. Example: Building costs are deemed $100,000 you can the claim a tax deduction each year of $2,500 until building is 40 years old or a $4,000 tax deduction until the building is 25 years on depending on when the building was built and its classification. 2). Depreciation of Fixtures and Fittings, Many items in the property are deemed fixtures and fittings (or plant and equipment) these have a lifespan, such as curtains for instance. The quantity surveyor determines the worth of the item at this point in time, the ATO supplies a guide to what an items lifespan is, that item is then depreciated at the rate of it's lifespan from when you buy it. Example: Curtains cost $1,500.. now worth $1,000.. lifespan 5 years.. = tax deduction of $200 each year for 5 years. (Prime Cost method) Buying a property with Furniture largely increases depreciation deduction as all furniture items are deemed as fixtures and fittings and have a lifespan, hence are depreciable at a rapid rate as fixtures and fittings. Please note: there are 2 types of ways to claim depreciation on fixtures and fittings (plant and equipment) 1. Diminishing Value (will give you higher deductions in early years) 2. Prime Cost Method (Easier to work out as equal amounts of deductions each year throughout the said life of item) Your quantity surveyor works out both examples on your depreciation schedule for you 3). Depreciation on buying costs,another deduction many investors sadly miss, your buying costs are added together and can be claimed equally over a 5 year period. These costs include Bank application fees, Valuation fees, Stamp duty on loan, Solicitors Fees, Mortgage insurance Example: Total buying costs comes to $5,000 you get to claim $1,000 each year for the next 5 years