Property Depreciation – Guidelines for Claiming Depreciation on Investment Property

Depreciation is the systematic exhaustion in the usefulness of the property or a reduction or loss in the property value due to some structural deterioration or wear and tear. Claiming depreciation on investment property helps to offset the rising cost of the interest rates.

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Property Depreciation - Advantages of Depreciation Claim

Property depreciation is a fundamental concept for realtors and those who run the rental properties. Although, depreciation can be used for tax benefits, you cannot claim for your home where you are currently residing. Calculating the depreciation value of the property is a significant step in depreciation claim. Methods like the straight line depreciation method are commonly used for calculating the depreciation value. Property depreciation directly affects your real estate taxes. The depreciation amount can be counted on your annual tax return as rental fee thus resulting in deduction of the tax owed. In this method, you can reasonably benefit however, selling your rental property can result in better benefits.

Building Depreciation - Methods of Calculating

There are many ways of calculating building depreciation cost. Straight line method is the most commonly used and is least confusing. Although the calculation is not extremely accurate, it provides the company with a definite value which helps to simplify the annual accounts. Reducing balance building system is a more complex method but gives a better idea of the property’s true value. The depreciation rate is determined by doubling the estimated straight line percentage. These two building depreciation methods are frequently followed depending on the need of the realtor.

Investment Property Tax - Detailed Discussion

Investment property tax is a duty levied on a piece of real estate that is not a person’s principal residence. Both residential and commercial properties are subject to this tax. Potential liabilities include rental income, and corporation tax. Rental income tax is a duty assessed on individuals or a group when their property investments results in profits. Corporation tax is also levied on companies that make rental income that realizes the capital gain from selling a property. However, property owners can claim tax deductions for their investment properties especially for those rented out to individuals. Any expense that is tailored with them is deductible only for the year for which they were paid.