{"id":38979,"date":"2023-01-30T04:20:00","date_gmt":"2023-01-30T04:20:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=38979"},"modified":"2023-05-02T16:23:55","modified_gmt":"2023-05-02T16:23:55","slug":"rental-property-depreciation","status":"publish","type":"post","link":"https:\/\/businessyield.com\/real-estate-investment\/rental-property-depreciation\/","title":{"rendered":"RENTAL PROPERTY DEPRECIATION: How To Calculate It","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Owning a rental property can provide a slew of cash benefits including rental property tax breaks. When the property is rented, it generates a consistent stream of cash. Deductions for costs like insurance, property taxes, and property maintenance can reduce the tax owing on rental income. And because real estate tends to appreciate in value, you may be able to sell it for a profit.
Another advantage is depreciation, which reduces the investor’s tax payment over the life of the property. Depreciation is frequently used by investors to maximize their profits on any given piece of property while minimizing out-of-pocket expenses. These tax advantages may play a significant role in your investment decision. Let’s see how to calculate rental property depreciation in this post.<\/p>

What Is Depreciation?<\/h2>

Depreciation is the process of deducting the cost of purchasing or renovating the rental property. Depreciation spreads those costs throughout the property’s useful life.<\/p>

Assume you purchase a rental property. Rather than taking a substantial tax deduction in the year, you purchased the property, you would take a portion of the cost of the structure as a lesser depreciation deduction each year.<\/p>

You may have heard the term “depreciation” used to describe the decrease in value that occurs as a piece of property wears and tears. This is not entirely correct. Depreciation is the process of dispersing the expense of property rather than determining its value. Even if your rental property is in excellent condition, it will depreciate.<\/p>

What is Rental Property Depreciation?<\/h2>

The IRS estimates that a residential rental property has a useful life of 27.5 years in 2020. During that time, the property wears out \u2013 or depreciates \u2013 at least for tax purposes.<\/p>

If you are a real estate investor, you can deduct 3.636 percent of the property’s cost basis from your annual income to minimize the amount of income due to tax.<\/p>

Depreciating enhancements<\/h3>

You do not just deduct the cost of purchasing a rental property. Money spent to renovate the property is also devalued. Anything that increases the value or usefulness of a property restores it to new or like-new condition, or adapts it to new use is considered an improvement.<\/p>

The number of possible enhancements is limitless, but common enhancements include:<\/p>