How Depreciation is a Boon for Investors

Depreciation has emerged as one of the major advantages of investing in real estate business. Many investors have a fair clue about this fact. Depreciation can significantly bring down your federal taxable incomes taxes along with other deductions like maintenance, insurance, and property tax. Depreciation makes it possible for you to spread the original price of a rental property. The investor can utilise the depreciation deduction for the buying price of the rental property. The investor can also use the deduction for different capital investments linked with the building. According to IRS guidelines, to make the property depreciable, you need to buy it even when the banks hold a mortgage. Here tax depreciation reports play a vital role.

Let us find out how depreciation is a boon for investors:

Depreciation Claims:

Depreciation begins the moment your property is available to rent. When you do not find a tenant, depreciation deduction will begin from the date when you start advertising for a tenant/s. It is because this is the date when the property was put in service. The depreciation will go on until you have deducted the overall cost of your property. In case you change your property for personal use, use it in an exchange or sell it, depreciation will stop. If the property gets damaged in a fire or flood, you won’t be eligible to claim any deductions.

It is important to note that depreciation claims remain active even when you take off the unit from the market briefly. For instance, when you plan to renovate or repair the property when tenants vacate before finding another tenant. You can hire experts to calculate depreciation on investment property.

Calculate Depreciation:

When you have found out that your rental property qualifies for depreciation, check the amount of depreciation available for deduction every year. The time period for depreciation may vary as per the kind of investment. If it is a residential property, your depreciation tenure is 27.5 years. Meanwhile, if it is commercial land, the depreciation period will be 39 years. As you will be eligible for a depreciation deduction for building not land, you should calculate the building value at purchase time. You may consider fair market value or glance through the real estate tax values. The depreciation schedule for appliances or any other tool is generally 5-7 years. So never miss out on your property investment returns.

Straight Line Method:

According to the IRS, the method of depreciation makes it possible for you to deduct a specified amount for depreciation every year. Soon after making the essential allowed deductions, you need to work out the entire amount of depreciation you are eligible for. Now, divide the balance by the number of years for the functional life and you will get your annual depreciation deduction amount if you used the property for less than a year. Here you need to calculate the depreciation deduction for the number of months when it was used for income-generating activity.

Repairs and Improvements:

The IRS mentions that you need to treat repairs or improvements to any property separately while filing for depreciation. Improvements can be defined as a fractional replacement or an addition to a property. Improvement helps in restoring a property and improves its conditions. Repairs will be treated as a one-off deductible cost.


If you find it difficult to calculate your ATO property depreciation, seek the help of experts. Depreciation has emerged as an amazing instrument for investors who are keen to enhance their bottom line. You must specify all the costs linked with your investment property. You also need to decide between simple repairs and those repairs which can be mentioned as an improvement for long-term deductions. So ensure you spend adequate time claiming depreciation so that you can enjoy the benefits.

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