Types Of Depreciation In Real Estate  

When a real estate investor thinks about depreciation, he or she feels that they will lose out on a large chunk of the income generated by the property. This is one of the biggest reasons why real estate investors look for ways and means to stop depreciation of their properties.

Depreciation is nothing but the reduction of the value of a real estate due to normal wear and tear. This amount can be deducted from the taxes paid on the income generated by the real estate. However, as time goes by, the property loses its value and the tax deduction increases in size. However, there is a cap to the amount that a person can claim as deductions. Hence, once the value reaches or goes beyond that point, the person is saddled with higher taxes as he or she cannot avail the benefits of depreciation.

There are primarily 2 types of depreciation in real estate. The 2 kinds are calculated based on 2 different methods. One type of depreciation is calculated using the straight line method, while the other uses the accelerated method. When it comes to straight line method, it is the most common type of method used. In this method, the salvage value of the real estate is determined for a particular period and it is this value that generates the revenue. A portion of the revenue is used as an expense for the same period of time until the total expense is equivalent to original cost of the real estate.

The other method is the accelerated method. In this method, more deductions can be made in the initial few years of owning the asset and is calculated like normal income tax.

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Types Of Depreciation In Real Estate

 

 

    
 

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