Depreciation of Investment Property
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
For federal income tax purposes, investment properties, such as rental properties, can be depreciated over a specified period. The IRS sets these periods. Depreciation is a non-cash expense, meaning it doesn't involve an actual outflow of cash, but it reduces taxable income. Land is not depreciable. Only the improvements (buildings) are depreciated.
Residential rental property is depreciated over 27.5 years under IRS rules.
Memorize the depreciation period for residential rental property (27.5 years). Understand that depreciation is a non-cash expense that reduces taxable income. Remember that land is not depreciable.
Related Terms
Related Concepts
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
A transfer tax is a tax imposed on the transfer of ownership of real estate.
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.