What is property depreciation and how does it work?

What is property depreciation and how does it work?

Property depreciation refers to the decrease in value of a property over time due to wear and tear, age, or market conditions. It can affect tax deductions and investment returns.

Why is property depreciation important for investors?

It's crucial for investors because it can reduce taxable income, allowing for significant tax savings. Understanding depreciation helps in making informed investment decisions.

How can I calculate the depreciation of my rental property?

You can calculate depreciation using the straight-line method, which divides the property's value by its useful life. For residential properties, the useful life is typically 27.5 years.

Are there different methods of calculating depreciation?

Yes, besides the straight-line method, there are accelerated methods like the double declining balance method, which allows for larger deductions in the earlier years.

What happens if I sell a property that has depreciated?

If you sell a depreciated property, you may have to recapture some of the depreciation as taxable income, which can affect your overall tax liability.