Depreciation

Depreciation is a tax deduction that lets real estate owners write off a portion of a property's value each year, reflecting the building's theoretical wear over time. It reduces taxable income even in years the property is actually increasing in value.

Example

A $10,000,000 property with $1,500,000 of that value in land has an $8,500,000 depreciable building basis. On the 27.5 year residential schedule, that's $309,091 in annual depreciation.

Formula

Depreciable Building Basis ÷ Recovery Period = Annual Depreciation

Excel Formula:

• B2 = Depreciable Building Basis
• B3 = Recovery Period (27.5 residential, 39 commercial)