How To Market Yourself As A Real Estate Expert: Understanding Tax Depreciation

Understanding Tax Depreciation



An advantage of real estate investment is the opportunity to depreciate the properties you own, thus decreasing your taxable base.



There are several different ways of depreciating your properties and you should always contact a legal professional or CPA for advice on the most effective methods for you and your situation.



The most common form of depreciation is "Straight Line" Depreciation. In this form of depreciation your accountant will assume that your property will essentially be worthless someday and depreciate a percentage of the property each year.



The IRS code states that property can be depreciated over 27.5 years. Therefore, if you had a rental property that you had originally purchased for $500,000 you would be able to depreciate (write off in lost revenue) $18,1818 dollars a year.



This presents some amazing advantages to you as a real estate investor. The majority of all properties (with a few minor exceptions) increase in value over time, especially in the long run. Therefore if you are able to depreciate the property over time, yet it is still increasing in value, you will eventually end up with a property that is worth more than you paid for it—yet you have written off the entire original cost of the property!



You may also elect to use accelerated depreciation. In this strategy the property is depreciated the property on an accelerated schedule, for example, 10 years instead of 30 years. Once again, it is important to contact an accounting professional as you will have to account for the money that you write off as depreciated loss if or when you sell the property.



As in all areas of real estate investing, the more knowledge you have, the more successful you will become—not only in locating properties and making money—but also keeping that money in your pocket. Of course with a 1031 exchange there are many rules and laws to consider and having a good legal team on your side can make all the difference.



For this and other articles by Brad Hess please visit http://www.mymark.com/blog. Brad Hess is CEO and Founder of MyMark. I made my mark with MyMark, providers of an integrated personal profile, blog, and home base for professionally branding you. This original post can be found at http://www.mymark.com/blog/bradhess/2011/01/25/how-to-market-yourself-as-a-real-estate-expert-understanding-tax-depreciation/