Investment Property Depreciation refers to the allocation of the cost of an investment property over its useful life for accounting and tax purposes. This process allows property owners to deduct a portion of the property’s value each year from their taxable income, reflecting the property’s wear and tear, deterioration, or obsolescence over time.
In the context of accounting, investment property can include residential rental properties, commercial real estate, or land held for investment purposes. For tax purposes, the depreciation is typically calculated using the Modified Accelerated Cost Recovery System (MACRS) in the United States, where the property is categorized based on its useful life—often 27.5 years for residential properties and 39 years for commercial properties.
For example, if a CPA firm purchases an office building for $1,000,000, they may depreciate this amount over 39 years. The annual depreciation expense would be approximately $25,641 ($1,000,000 / 39), which can be deducted from the firm’s taxable income each year, thereby reducing its overall tax liability.
« Back to Glossary Index