Who can claim
This deduction is available to individuals and companies.
- The asset is used or installed ready for use to earn rental income and the relevant depreciation conditions are met.
- A new depreciating asset you acquire for the rental property can generally qualify, subject to the ordinary decline-in-value rules.
- A second-hand residential rental asset can qualify where the restriction does not apply, including qualifying rental-property businesses and excluded entities.
What you cannot claim
- The restriction generally denies decline-in-value deductions for a second-hand asset acquired under a contract entered into at or after 7:30 pm on 9 May 2017 for use in residential accommodation, unless an exception applies.
- The restriction can also apply where an asset was used or installed ready for private use in 2016-17 or an earlier year and no decline-in-value deduction was available for 2016-17.
- Private use and non-rental periods are excluded or apportioned.
- Capital works and land are not depreciating assets under this calculation.
How the amount is worked out
For an eligible asset, work out decline in value from when it is first used or installed ready for rental use, then apportion for rental and private use. Do not calculate decline in value for a restricted second-hand residential rental asset.
You can work this amount out step by step in the Deductit calculators.
Records the ATO expects
- Asset purchase records
- Contract and first-use dates
- Evidence whether the asset was new or second-hand
- Depreciation schedule
- Rental availability records
- Business or excluded-entity evidence where relied on
Where this rule comes from
Primary source: Income Tax Assessment Act 1997 section 40-25 (Section 40-25). Reviewed 30 July 2026. Covers the 2025-26 and 2026-27 income years.
Supporting sources:
- ATO Rental properties guide 2026 (Rental properties guide 2026)