What Happens When A Property Starts To Depreciate?

Definition of "What happens when a property starts to depreciate?"

Roseanne Simmons real estate agent

Written by

Roseanne Simmonselite badge icon

A B Realty Group

You came in here looking to find out what happens when a property starts to depreciate but the truth is that the question comes from a false premise because not all properties depreciate. To start off, we need to refer back to what is property depreciation in the first place. If we’re talking about the general concept of things losing their value over the span of time, then the answer to what happens when a property starts to depreciate is… it loses its value.

However, analyzing the tax and accounting aspect of it, things change.

These are the types of property that do depreciate:

  • Investment properties (rentals)
  • Commercial real estate
  • Mobile homes

You might have noticed that aside from Mobile Homes, the rest of the properties that depreciate are real estate that’s used for non-residency purposes. So we arrive at the main idea regarding depreciation: is home depreciation common? Generally, real estate that serves as a residence does not depreciate. What actually depreciates (or increases its value) is the area in which the residence is at - which is what explains when, within a few years, homes can regain (or make it worse) that depreciation. The dwelling itself, however, has little weight to the equation, as building methods and materials don’t develop that much from year to year. The fact that mobile homes depreciate is due only to its “mobile” part, as automobiles do depreciate because of the fast pace with which the automobile industry develops new pieces and technologies.

So, why investment properties and commercial real estate (including office space) depreciate? Because its offices go into the calculation of profits of any business. Depreciation becomes, then, a way to write-off expenses of your business. In fact, if part of your house is used for home offices, the IRS allows you to deduct that portion. So, what happens when those properties start to depreciate? The deductible amount depreciates too. This depreciation is done due to dilapidation but also due to the depreciation (or the value increase) of the location.

 

Real Estate Advice:

If you’re in the market buying a home and you intend on working in a home office, make sure to tell that to your local real estate agent! He might have some important advice about square footage for your home office and save you some sweet tax money!

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Questions

Popular Real Estate Glossary Terms

Real property located in an excellent area for its designated objective. An example is a restaurant situated near office buildings, on the main boulevard, so it is easy to see, and has ...

legal ruling providing protection to home buyers of defective homes bought from a seller who then sold the contract to a third party. ...

A real estate broker who lists and sells houses or condominiums, as distinguished from a commercial broker who handles business property. ...

Company formed for the purpose of owning securities of one or more real estate corporations and assuming control over their practices and management. The other corporations are generally ...

Percentage of a geographic location's population to the number of persons employable by a basic industry in that area. A basic industry is one that draws income from outside the locality ...

Hollow building block whose dimensions are 8 x 8 x 16. Concrete blocks are widely used in the construction of foundations and outer walls. They provide strength and durability. ...

Compilation of all tax maps of a given tax district that are bound together and kept at the local tax office. The tax book is a public record that may be accessed by an individual for ...

The initial cost of a home plus any expense for final settlement that are not tax deductible plus capital improvements. ...

Every borrower has his own definition of amortization schedule in mind. An amortization schedule is a table that reveals how the debt is going to be paid back and at what cost. For most ...