Full Definition
Depreciation is a non-cash tax deduction that allows real estate investors to write off the cost basis of income-producing property over its useful life. Commercial property: 39 years. Residential investment (multifamily): 27.5 years. Cost segregation studies can reclassify portions of the building to 5-year and 15-year schedules for accelerated depreciation.
Related Terms
Depreciation Recapture
Tax levied on the gain from depreciation previously claimed on an investment property, at a maximum 25% federal rate.
Cost Segregation
IRS-approved tax strategy that reclassifies portions of a building into accelerated depreciation schedules (5 or 15 years) instead of 39 years.
Bonus Depreciation
IRS provision allowing investors to deduct a percentage of qualifying property costs in the first year. Phasing out from 100% (2022) to 0% (2027).