Can someone explain Rental Property Depreciation? Having trouble how the 3.636% annual deduction works? Does this mean after 27.5 years I have essentially a “free” building on my land?
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You should talk to an accountant in your area. This may work differently depending upon your country, state or province, and tax situation. In canada doing this may mean you pay a much bigger capital gain tax on the property when you sell it in the future, as you have depreciated the asset over the years, but you are potentially going to sell it for the same price regardless. Meaning you have a bigger gain on the property than you would if you hadnt depreciated it. Gain = selling price –initial value of property – selling expenses. If you depreciated the initial value of property (ie what you originally paid for it) over time you can see the gain (in the eyes of the tax people) will be higher when you sell in the future. So you may pay more tax in the future, but use the depreciation now to offset some other gains for tax purposes. Basically depreciation is just a tool that allows you to better manage your ongoing tax situation.
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