Depreciation How Does It Work? Part One

Investors may claim depreciation and other deductions, such as , mortgage interest, property taxes , insurance, management, maintenance, and utilites to reduce the tax bill. In my opinion one of the most important tax benefits of income property ownership is the depreciation allowance. Depreciation is a tax advantage of ownership of oncome property. THere is also some math involved in calculating depreciation and i will show an example of this in the next blog.

Depreciation for tax purposes is not based on the actual deterioration of the property , but on the calculated useful life of the property. In general the common logic is that improvements not the land itself deteriorate and lose their value. A building is though to have a certain number of years in which it can generate an income. After this time frame it is not considered a practical investment. The investor is acutally compensated for the loss by being allowed to deduct a certain dollar amount each year based on the useful life of the property. Of course these tax laws change very often so its best to contact uncle sam (the IRS) for the current rules of calculating depreciation.