CHAPTER 40Calculation 34: Depreciation

What It Means

Depreciation (also called cost recovery) is the amount of the tax deduction that a property owner may take each year until he or she has written off the entire depreciable asset. With real estate, you treat the physical structures (called improvements) as your depreciable assets, but not the land. Therefore, there is no depreciation allowance for the value of the land.

The exact amount of your depreciation deduction each year is determined by the asset’s useful life as specified in the tax code. The useful life for tax purposes is not necessarily the same as the actual physical life expectancy of a particular asset. As of this writing, the useful life for residential property is 27.5 years, ...

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