Real Estate Depreciation
Browse our collection of articles on real estate depreciation from AE Tax Advisors.
Our team regularly publishes insights on real estate depreciation to help high-income professionals stay informed about tax planning opportunities and compliance requirements.
Frequently Asked Questions
How does real estate depreciation reduce taxes?
Real estate depreciation allows property owners to deduct the cost of a building over its useful life (27.5 years for residential, 39 years for commercial). Cost segregation can accelerate these deductions by reclassifying components into 5, 7, or 15-year categories.
Can depreciation losses offset business income?
In most cases, rental depreciation losses are passive and cannot offset business income. However, short-term rental owners who materially participate, or taxpayers who qualify as real estate professionals, can use depreciation losses against active income.
What is bonus depreciation and how does it work?
Bonus depreciation allows property owners to deduct a large percentage of qualifying asset costs in the first year rather than spreading deductions over the full recovery period. The bonus depreciation rate phases down annually under current tax law.
What happens when I sell a depreciated property?
When you sell a depreciated property, you may owe depreciation recapture tax at a rate of up to 25% on the depreciation previously claimed. Proper planning, including 1031 exchanges, can defer or reduce this recapture liability.