Investment Property DepreciationDepreciation of investment property
Last year I purchased my first investment property and am now getting my tax ready. Is it possible to write off the property to cut my rateable earnings? In fact, the I.R.S. expects that depreciation will be computed from the purchase of an investment property in order to raise the amount of rateable profits you have made on the property, so it is in your interest to ensure that you use the depreciation during the life of the property.
What can you write off? You can not only write off the property, but also any extra investment you have made that has a three-year depreciation plan. Below are some of the things that can be written off next to the property itself: property maintenance tools such as landscape maintenance tools or cleaners.
Plots of Land are not depreciation assets, and no deduction can be made because plots of ground were there before the building and improvement was built, and they persist long after they are gone. Nor can you write off any repairs or maintenance agreements. These can be subtracted from your net earnings as an expense, but are not deductible as depreciation charges.
Depreciation is deducted over a specific depreciation horizon depending on the nature of the investment. In the case of real estate that is commercially used, the depreciation term is 39 years (compared with 27.5 years for real estate used for residences). If you use a straight-line depreciation rate for a $2 million industrial property, for example, you will get an $51,282 per year discount ($2 million / $39 = $51,282).
In contrast to the buildings themselves, assets such as apparatus or facilities generally depreciate over a period of five or seven years, whichever is less, because of their estimated useful lives. On the other side, stoves usually have a depreciation plan corresponding to the actual property, regardless of whether it is a living or business property. You can find a break-down of the depreciation chargeable line item and the corresponding timetables in Section 2, Depreciation of Rental Properties, in IRS Publication 527, Rental Property.
Section 2 is applicable to industrial property, but further details on industrial investment can be found in Section 4 of IRS Publication 946, How to Depreciate Property.