Real Estate Tax Savings

Real estate depreciation is a tax deduction that allows property owners to recover the cost of their investment over a period of time. It is based on the idea that assets deteriorate over time and lose value as they age. The IRS allows property owners to deduct a portion of the cost of their property each year, which reduces their taxable income and can result in significant tax savings.

To calculate real estate depreciation, you'll need to know the cost basis of your property, which includes the purchase price, closing costs, and any improvements you've made. You'll also need to determine the useful life of your property, which is the amount of time it's expected to be in service before it needs to be replaced.

Once you have this information, you can use the straight-line method or accelerated depreciation method to calculate your deduction. With the straight-line method, you divide the cost basis of your property by its useful life, which gives you your annual depreciation deduction. With the accelerated depreciation method, you front-load your deductions by taking a larger percentage of the cost basis in the early years of ownership.

It's important to note that real estate depreciation only applies to the building and not to the land it sits on. This is because land is considered to have an infinite useful life and does not depreciate over time.

Overall, real estate depreciation is a valuable tax deduction for property owners that can help reduce their taxable income and save them money on their taxes. It's important to consult with a tax professional to ensure you're taking full advantage of this deduction and to avoid any potential pitfalls.