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The occasion may arise where you decide to rent out the home that you have been living in.  For example, you might be going to travel overseas for a time, or your employer might transfer you to an interstate location.  You don’t want to sell your home, so you rent it out.  Alternatively, you might purchase a new home and decide to have your former home as an investment property.


Can you get a tax deduction for depreciation of the “depreciating assets” in your home that is now a rental property?  Let’s say you bought a new oven for $1,500 two years before you moved out of your home.  Can you claim any depreciation of the oven against the rent you derive from the property?


The answer is “no”.  The tax law has not always given this outcome, and this confuses some people.


Section 40-27 was inserted into the 1997 Tax Act with effect from 1 July 2018.  This provision was introduced to stop the new owners of a recently purchased rental property claiming a tax deduction for depreciation with regard to assets that were in the property at the time of purchase.


This section also contains another provision that is specifically aimed at residences being converted into rental properties.  The provision operates where at any time during the income year or an earlier income year, an asset (such as the oven) was used, or installed ready for use in residential premises that were one of your residences at that time.


When this provision has operation, generally, no depreciation deduction can be claimed under Division 40 of the 1997 Tax Act.  The provision does not apply to assets allocated to a “low-value pool”.


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