Depreciation in real estate
March 26, 2012
It's a good time to consider both residential and investment real estate, as figures from the National Association of Realtors show reduced home prices and interest rates are at near-historic lows, while affordability hit a 42-year high in early 2012.
A recent poll indicated that three-quarters of likely voters believe real estate deductions to be "appropriate and reasonable," according to Steve DiUbaldo, president of full-service real estate brokerage Atlantic & Pacific Real Estate.
One tax break that can be taken advantage of by investors is depreciation
. Real estate improvements can be depreciated over time as they will eventually wear out and require replacement.
"The investor is not actually spending the cash represented by the 'cost' of depreciation and one result is that it's possible to have an investment property which produces a positive cash flow that is partially or wholly not taxable currently," DiUbaldo explained in a statement.
He added that in some cases, individual taxpayer limitations may even make it possible to show a loss for tax purposes.
Land is one of the few fixed assets
that cannot be depreciated because its value doesn't decrease over time. When selling land, subtract the cost from the sales price to determine taxable gain.