How to Depreciate a Real Estate Value
All assets are depreciated over a period of time. Same is true for real estate and it has a certain amount of depreciation each year. Marking this depreciation can reduce the amount of taxes one has to pay in the way of income tax.
There are certain expenses along with the property that qualifies for the depreciation. However, some important factors should be kept in mind before the depreciation is calculated. Once everything is clear, you can use the formula and know how much your real estate has deprecated in a single year.
Instructions
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1
Know the Guidelines
There are detailed guidelines from the IRS for the depreciation to be accounted for. Make sure that you are aware of the type of property as well as the number of years and types of depreciation that will take place in your case. A residential property is to be depreciated in 27.5 years where as a restaurant property is depreciated over a period of 15 years. It obviously has to be your own property and in use in order to qualify. -
2
Add Qualifying Expenditures
Buying real estate involves a number of expenditures such as payment for surveys, legal fees and payments for repairs to make the property habitable. You will add these costs when you are calculating the depreciation of the property. -
3
Deduct Land Value
You will need to deduct the value of the land from the total value of the property as land does not depreciate as per law. Once you have subtracted the value of the land and added the qualifying expenditures, you will know exactly how much is left for depreciation to be calculated upon. -
4
Calculate Depreciation
You will probably do this using the straight line method. Simply calculate the number of months that you have owned the real estate and divide it by twelve. Say that you have owned the property for a period of ten months. You will divide 10 by 12.
The next thing to do is to calculate the depreciation as per the given time by the IRS. If it is a residential real estate, you will divide the value of the real estate by 27.5 in order to get the amount of depreciation for a single year. Once this is calculated, multiply the amount by the number of months spent on the property. You will get the exact amount of the depreciation this way for the given year.
