Can someone explain how your properties have depreciation values that you can write off every year while your houses usually appreciate? I dont understand this topic.
It’s a quirk of our income tax code. The IRS allows you to take a depreciation expense on your rental property each year even though the property may have acutally appreciated.
Rest assured the IRS is not giving away something for nothing. When you sell the property at a profit, the IRS says that property did not really depreciate, so the depreciation you claimed (or should have claimed) is taxed as income at 25%.
First of all, you can’t expect the IRS to make any sense.
When your real estate appreciates, it is the value of the land underneath it that is going up, and not so much the building.
You are only allowed to depreciate the building and not the land. The building is getting older, and it’s useful life span is being used up. Houses don’t generally last forever. They are used up at some point without heroic measures to keep them useable. It’s a lot longer time period to use them up than the IRS is giving you for depreciation, but they really are consumable assets.