Depreciation

Depreciation is the accounting method of systematically reducing the book value of a fixed asset, such as a commercial property or equipment, over its estimated useful lifespan. The asset loses value over time due to wear, obsolescence, or other economic factors.

For real estate investors, depreciation is a tax-deductible expense. The building component (excluding land) can be written down annually according to statutory schedules, reducing taxable income and improving after-tax returns. This creates a significant benefit in property investment returns calculation.

Typical depreciation periods for commercial real estate range from 25 to 50 years depending on building type and jurisdiction, whereas machinery or fixtures may be depreciated more rapidly.