Real Estate Depreciation for Rental Property
Loading...Loading...Loading...Loading...Depreciation is one of the most valuable tax concepts in rental-property investing because it can reduce taxable income without requiring additional cash spending.
That is also why it confuses so many investors. Depreciation feels abstract until you see how it affects your tax return, your annual cash flow, and the way you think about long-term ownership.
Depreciation allows investors to recover the cost of the building over time. The land is not depreciated, but the structure generally is. In practice, this means part of the property’s cost basis may be recognized gradually as a tax benefit.
A property can generate positive cash flow while reporting less taxable income because depreciation offsets part of that income. That is one reason real estate often looks attractive on an after-tax basis compared with simpler asset classes.
Depreciation is a real benefit, but it is not magic. It should improve a sound investment thesis, not rescue a bad one. You also need to understand that depreciation affects basis and can matter again when you sell.
The common errors are failing to separate land from building value, misunderstanding which assets follow different schedules, and treating depreciation as a one-time trick instead of a long-term framework.
Standard depreciation is the baseline. Bonus depreciation becomes relevant when certain shorter-life components can be accelerated into earlier years. That can materially change the timing of tax benefits, but the logic starts here.