Can You Depreciate Rental Property?

Investments into some types of real estate can be tax deductible depending on different scenarios for investors. The average person who buy into an investment property does have options when it comes to writing off certain annual expenses. A person wondering if he or she can depreciate rental property can benefit from reading the open source guide of this page.


Taxation and Investment Homes

The IRS is the governing body appointed to oversee income earned for passive income streams for real estate. The information on this page is meant for use as an educational source and is not legal advice for a man or women who is seeking the best ways to depreciate an investment home each year. The following general guidelines are offered to new investors hoping to review rental home depreciation rules online:

1. Depreciation of Rental Units is Allowed

2. Properties Must Be Qualified and Placed in Service

3. Homes Must Have Extended Use Lifespans

4. Only Property Owner Receives Tax Benefits

5. Depreciation Stops When Property is Retired

The Internal Revenue Service uses a cost basis approach to determine what properties can be qualified for a depreciation schedule. Certain fees that are put into a property at the time of purchase and after the home is actively used for a profit could be subtracted from taxes owed.

rental home depreciation


Non-Depreciated Investment Expenses

There is a list of ongoing expenses that is updated each year by the IRS that showcases what is and is not allowed for property depreciation. Certain types of insurance premiums like fire or mortgage cannot be added to the annual depreciation schedule. Fees paid for credit checks or appraisals that are required by lending institutions are included in the non-eligible list.

The type of schedule used each year in hopes of reducing annual taxes is based on how the home is used. The MACRS type was introduced after 1986 and is the one most commonly used for investment property owners who are eligible for house depreciation. A property class is generally assigned under MACRS to make certain that the correct year of termination can be used under a schedule of depreciation.


Appliances and Amenities Depreciation

Computers, stoves, carpeting, fencing and other types of amenities that are placed into a rental property could be depreciated based on the year of purchase. The general system in place setup by the IRS provides specific years to different types of appliances or additions to a home. The average length in years for depreciation is between 5 and 15 years for most types of inclusions inside of a property used as a rental.

Land costs are generally excluded from any type of rental home depreciation unless certain types of upgrades are paid for. A landscaping charge or leveling of the property could be written off under certain circumstances to reduce out of pocket expenses. A good tax accountant or real estate attorney could provide more information about what is excluded from land maintenance depreciation.

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