What is the depreciation of real estate tax?

Real estate tax depreciation concerns the amount lost over time of real estate owned for business purposes, such as rental property or trade. The owners of these properties can write down depreciation of a building that holds the company to reduce their annual tax burden. When calculating depreciation on real estate tax, the original cost of the building is depreciated by means of a direct line for 27.5 years, if the building is resident, as a residential complex or 39 years, unless residential, as a trade. Although this depreciation helps the investor in annual tax returns, it works against it when the property is sold because the reduced value of the building means that higher capital taxes must be paid. The owner of the depreciated assets is then able to establish a depreciated amount for his tax return, so somewhat compensation of value loss. The property falls into this category if it is used for business purposes, thus creating a concept of depreciation of real estate tax.

It is important to realize that the soil is not a depreciable asset, so the cost of land is deducted from the purchase price of the property to determine the costs of the building in question. As the building is used, then determines the extent of the time over which the building will be depreciated. The depreciation is then calculated by means of a method of depreciation in which annual depreciation equals the original costs of the building divided by the length of the depreciation.

For example, a building in which a mixed shop is located was stood by the owner of $ 7,800 (USD). Because it is a non -resident building, but is used for business purposes, the internal revenues of the United States (IRS) estimate the life of the building in 39 years. So $ 7,800 is divided by 39, which means that the depreciation of real estate tax in this case is $ 200 each year. In other words, the value of the building in the second year would drop to $ 7,600, ie $ 7,800 minus $ 200, then to $ 7,400 in its third year and so on.

Depreciation of real estate rental tax is calculated in the same way, although with a 27 -year life associated with the IRS. The amount of depreciation every year is known as depreciation costs and the owner can be written off the tax return. This also means that the estimated value of the building drops every time the depreciation costs are required, so when the owner sells this property, they realize higher capital gains. Because this is the case, higher taxes would be payable after receiving these profits than if the building was not depreciated.