Depreciation on rental property allows landlords to claim a tax deduction for the gradual loss of value of depreciable assets. In New Zealand, the building itself is not depreciable (since 2011), but furniture, appliances, and fittings (chattels) can be depreciated at IRD’s set rates — reducing your taxable rental income each year.
Residential rental buildings are not depreciable in NZ. However, chattels (carpet, curtains, appliances, furniture) can be depreciated using IRD's set rates. Items under $1,000 each are written off immediately in the year of purchase. Set up an asset register listing each chattel, its purchase price, and annual depreciation — this is essential for accurate tax filing and maximising your deductions.
Building Depreciation: Not Available
Since 2011, residential buildings cannot be depreciated. This was a policy change by the National government (partially reversed for commercial buildings in 2020, but not restored for residential).
What this means:
- The building structure, walls, roof, and foundations: not depreciable
- The land: never depreciable (land does not wear out)
- Chattels and fittings within the building: depreciable
What Can Be Depreciated
Chattels (Always Depreciable)
Chattels are moveable assets within the property — they are separate from the building structure itself. Common depreciable chattels:
| Chattel | Method | Rate | Notes |
|---|---|---|---|
| Carpet | DV | 25% | Per room; replaced separately |
| Vinyl flooring | DV | 25% | |
| Curtains and blinds | DV | 25% | |
| Dishwasher | DV | 25% | |
| Fridge/freezer | DV | 20% | |
| Washing machine | DV | 26% | |
| Dryer | DV | 24% | |
| Stove/oven (freestanding) | DV | 20% | |
| Rangehood | DV | 20% | |
| Microwave | DV | 50% | Short useful life |
| Heat pump (unit only) | DV | 12.5% | |
| TV | DV | 50% | |
| Furniture (tables, beds, sofas) | DV | 18% | |
| Light fittings | DV | 20% | |
| Hot water cylinder | DV | 12.5% |
DV = Diminishing Value. SL = Straight Line (also available for most assets).
Fixed Fittings (Sometimes Depreciable)
Fixed fittings that are part of the building structure are generally not separately depreciable. Fittings that can be removed and replaced independently may be depreciable:
- Fixed carpet: depreciable as a chattel
- Vinyl flooring: depreciable
- Built-in kitchen appliances (integrated dishwasher, oven): may be depreciable depending on whether classed as building fixtures
When in doubt, check IRD’s depreciation schedule tool at ird.govt.nz.
Depreciation Methods
Diminishing Value (DV)
The rate is applied to the declining book value each year. Higher deductions in early years; declining over time.
Year 1: $5,000 × 25% = $1,250 deduction. Closing value: $3,750. Year 2: $3,750 × 25% = $938 deduction. Closing value: $2,812. Year 3: $2,812 × 25% = $703 deduction. And so on.
Straight Line (SL)
A fixed percentage of the original cost is deducted each year — the deduction remains constant. IRD publishes equivalent SL rates alongside DV rates.
Year 1: $5,000 × 17.5% (SL equivalent) = $875/year, constant.
The diminishing value method produces larger deductions early, making it advantageous from a time-value-of-money perspective.
Low-Value Asset Write-Off (Under $1,000)
Assets costing $1,000 or less (exclusive of GST if GST-registered) can be written off in full in the year of purchase — no need to set up a depreciation schedule.
This applies to individual items, not groups. A set of 12 dining chairs purchased together for $1,200 total ($100 each) would be assessed at the individual item level — each chair at $100 can be written off immediately.
Setting Up an Asset Register
An asset register is a spreadsheet or accounting record listing each depreciable chattel. For each item include:
- Description
- Date acquired
- Purchase price (exc. GST if registered)
- Depreciation method and rate
- Opening book value (start of year)
- Depreciation claimed this year
- Closing book value (end of year)
Example asset register entry:
| Asset | Acquired | Cost | Rate (DV) | Opening value | Depreciation | Closing value |
|---|---|---|---|---|---|---|
| Heat pump | Apr 2023 | $3,200 | 12.5% | $2,450 | $306 | $2,144 |
| Carpet (lounge) | Apr 2022 | $2,800 | 25% | $1,575 | $394 | $1,181 |
| Fridge | Mar 2025 | $900 | — | $900 | $900 (write-off) | $0 |
Depreciation Recovery on Sale
When you sell a rental property that includes depreciable chattels, you must account for depreciation recovery (also called “claw-back”):
If you sell a chattel for more than its current book value, the difference is taxable income in the year of sale.
Example:
- Washing machine purchased for $1,200, book value after depreciation = $600
- You sell the property and the washing machine is valued at $800 in the sale
- Depreciation recovery: $800 − $600 = $200 taxable income
This is why getting a chattel valuation report at purchase (to establish the initial values) and maintaining accurate records throughout ownership is important.
Chattel Valuation at Purchase
When you buy a rental property, getting a chattel valuation report from a registered valuer establishes the initial value of all chattels separately from the building and land. This:
- Establishes the opening book value for depreciation purposes
- Maximises your depreciable base (the more attributed to chattels, the more you can depreciate)
- Provides documentary evidence for IRD
A chattel valuation typically costs $300–$600 and pays for itself quickly through the tax deductions it enables on a furnished property.
Frequently Asked Questions
Can I depreciate the property I just purchased on a new mortgage?
You can depreciate the chattels within the property. The building itself (structure) cannot be depreciated. If you purchased a furnished property, get a chattel valuation to split the purchase price between building/land and chattels.
What happens to depreciation if the property is vacant?
Depreciation continues regardless of whether the property is occupied. The asset still ages even when untenanted.
My tenant damaged the carpet. Can I claim this?
Yes. If a tenant damages a chattel, you can claim the repair cost (fully deductible) or, if the item must be replaced early, you can write off the remaining book value in that year. If you receive a payment from the tenant or insurance for the damage, this offsets the claim.
Can I depreciate assets I purchased for the property before it became a rental?
Only from the date the property first generates rental income. If you lived in the property before renting it out, you establish the depreciation base from the date of first rental.