Depreciation on Your Investment Property... Houses Vs Apartments

When deciding between buying an apartment or a house, there’s so many considerations one must factor in, like budget, location, space, privacy, and
long-term investment potential.

Apartments are typically more affordable, low-maintenance, and centrally located vs houses which may offer more space, privacy, and long-term value but have higher costs and maintenance responsibilities. The choice ultimately depends on your lifestyle needs, financial situation, and long-term goals. Understanding the nuances of depreciation can potentially impact one's property investment strategy.

Both houses and apartments are eligible for depreciation, but the amount they can claim varies depending on the property type. Apartments often provide greater depreciation benefits due to shared facilities like gyms, elevators, and common areas, which increase plant and equipment claims. Then again, houses typically offer higher land value but slightly less claimable assets.

Build cost, property age, and ownership strategy all influence which property type may yield higher tax deductions. Here's an overview of some factors to consider:-

Claimable Depreciation Expenses on Apartments 
There's two main types of depreciation expenses that property investors can claim: capital works and plant and equipment. 

1. Capital Works: Depreciation refers to the wear and tear on the building’s structure, including elements such as walls, floors, and ceilings.  
2. Plant and Equipment: Depreciation covers the wear and tear on assets within the property, such as appliances, carpets, and blinds.  

Houses vs Apartments for Investment Property

A Quantity Surveyor must consider many factors when calculating how much depreciation is required for a residential rental property.  Whilst there's many similarities in how depreciation is calculated for both houses and apartments, differences do occur when you look at how the properties are built.

 
Building Costs and Depreciation Deductions Rates 
Houses generally have a larger gross floor area than an apartment with the same number of bedrooms. Apartments generally require more labour to build as multiple floors need to be accounted for which makes their build cost comparable to a house for capital works (Division 43).  

Calculating Rental Property Depreciation 
Calculating rental property depreciation can be a complex process. The Australian Taxation Office (ATO) provides guidelines on how to
calculate depreciation, including the use of the Prime Cost vs Diminishing Value methods.

Strata Depreciation Claims  
Apartment units can claim a portion of the common areas which adds to the depreciation they can claim under plant & equipment (Division 40). 
While both houses and apartments can claim standard plant and equipment such as oven, light shades and blinds, apartment owners can also claim a portion of the strata equipment in the common areas of the apartment (e.g. lifts, gym equipment and fire extinguishers, claimable
under Division 40 Plant and Equipment assets).