Depreciation

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Sunday, February 24, 2008

The loss of value of an asset because of changes in market conditions or other causes.

The opposite of appreciation.

For tax purposes, a deduction that some property owners may take each year until they have written off the entire value of the depreciable asset. In real estate, the physical structures are considered depreciable assets, but the land is not.

A term that can be confusing to people because of those dual definitions, said Thomas P. Ochsenschlager, vice president for taxation at the American Institute of Certified Public Accountants. "You are depreciating an asset, but it may very well be appreciating."

A term that is relevant to those who own a rental property or who have a trade or business.

A deduction that can be calculated a variety of ways, depending on how the asset is used.

A deduction that is later "recaptured" and taxed at a special rate, though there are ways to defer or avoid this recapture tax, Ochsenschlager said. On real property, the federal recapture tax rate is 25 percent.