Real estate investors benefit from depreciation deductions, which represent a non-cash expense. Generally, commercial property must be depreciated over 39 years while residential properties (apartments and rental homes) are written off over 27.5 years.
Fortunately, your entire investment need not be depreciated over such long time periods. Items such as carpeting and furniture can be classed as personal property, depreciable over seven years, while parking lots and landscaping may be classed as land improvements, depreciable over 15 years. (The amount allocated to land is not depreciable.) In addition, a tax law passed in 2002 allows even faster depreciation of items not classed as real estate.
Thus, if you hire a knowledgeable appraiser, various components of your real estate investment will qualify for speedier depreciation deductions. Instead of deducting 3 percent or 4 percent of the purchase per year, depreciation deductions might be 6 percent or 7 percent in the next few years.
Faster depreciation will reduce your taxable income from a property or increase a loss that you report, for tax purposes.
