Depreciation Tax

Definition of "Depreciation (tax)"

Jimmy Grappone

Allocation of the cost of fixed assets, such as plant and building, over the life of the asset. Depreciation is due to physical use and/or obsolescence. Depreciation reduces taxable income, but does not reduce cash. The two depreciation methods allowable on the tax return are straight-line and modified accelerated cost recovery system (MACRS). Under the straight-line method, depreciation is the same amount each year. Under MACRS, each item of property is assigned to a property class. The property class establishes the depreciation time period.

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