Depreciation in Real Estate: What It Means and How It Affects Your Investment

When you buy a rental property or commercial building, depreciation, the gradual loss of value of a property over time due to wear, age, or obsolescence. Also known as tax write-off for real estate, it's not about the building falling apart—it's about how the government lets you reduce your taxable income over time. This isn't magic. It’s a legal way to account for the fact that roofs wear out, HVAC systems age, and floors get scratched. Even if your property’s market value goes up, the IRS still lets you claim depreciation on the structure—usually over 27.5 years for residential rentals in the U.S.

But depreciation isn’t just a tax trick. It directly impacts your investment property, a real estate asset bought to generate income through rent or resale cash flow. For example, if you buy a $500,000 rental home and the land is worth $100,000, you can depreciate the $400,000 building. That’s about $14,500 a year you can deduct from your rental income. That means less tax owed, more cash in your pocket—even if you didn’t spend a dime out of pocket. It’s why savvy investors buy properties not just for rent, but for the tax benefits too. And if you sell later? You might owe depreciation recapture tax, but that’s only if you made a profit. Most people end up ahead.

Depreciation also plays a role in how lenders and appraisers view your asset. Banks don’t care about your tax forms—they look at market value. But when you’re comparing properties, knowing how depreciation affects net operating income helps you spot the real winners. A property with low maintenance and long-lasting materials might depreciate slower, meaning you get more years of tax savings before needing big repairs. That’s the difference between a property that drains your cash and one that quietly builds wealth.

You’ll find posts here that dig into how depreciation works across different states, what happens when you upgrade a property, and why some landlords avoid claiming it (and why that’s usually a mistake). Some articles even compare how depreciation rules differ between the U.S. and India—because while the IRS lets you write off buildings, Indian tax law handles it differently. Whether you’re a landlord in Virginia, an investor in Texas, or someone looking at luxury apartments in Bangalore, understanding depreciation changes how you see value.