Depreciation, in the context of rental property, represents a deduction taken over several years to recover the cost of a tangible asset used for income production. This asset must have a determinable useful life exceeding one year. For instance, if a landlord purchases a residential rental building, a portion of the cost can be deducted each year for a specified period, reflecting the gradual decline in value of the property due to wear and tear or obsolescence. This deduction is not applicable to land. The expense stems from the allocation of the initial property cost over its estimated useful life. The term we are using this article is how to calculate rental depreciation.
Accurately accounting for this reduction in value offers several advantages. It lowers taxable income, resulting in potential tax savings. Furthermore, it reflects a more realistic picture of the property’s overall profitability. The concept of allowing a deduction for diminishing value has evolved over time, reflecting changes in accounting practices and tax laws. It is now a standard element of property investment and taxation. The keyword term we use to this article is how to calculate rental depreciation.
