Are Investment Properties Depreciated?

As a rental property owner in Bangalore, I asked my friend, a real estate advisor, are investment properties depreciated. He said yes, investment properties depreciated mostly for tax purposes. Property owners consider the gradual deterioration of their investment because of this tax benefit. However, it completely depends on the type of property you have.

What is Investment Property Depreciation?

Depreciation is the gradual reduction in your property's value because of wear and tear, aging, and obsolescence. Over time, it generates a tax deduction that owners utilise to recoup a portion of the investment's cost. 

The IRS mandates distributing the deduction throughout the property's perceived useful life rather than allowing the full amount to be deducted in the year of purchase.

1. Depreciation is not permitted if you simply purchase an apartment or home as an investment and leave it unoccupied.

2. Income from House Property applies if the property is rented out. In this case, depreciation is not directly permitted by the Income Tax Act. Rather, you receive a normal 30% deduction on your rental income's Net Annual Value (NAV).

I hope you found this information useful.

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Depreciation is a deduction that allows property owners to account for the gradual wear and tear of assets over time. Coming to your query, are investment properties depreciated in India? Yes, investment properties in India are subject to depreciation under the Income Tax Act, 1961. However, how the property is treated varies depending on whether the cost model or the fair value model used for accounting. 

What is the Depreciation for Investment Property?

The depreciation rules differ for land and buildings. Only the building component of an investment property is eligible for depreciation, not the land.

1. The Income Tax Act prescribes a depreciation rate of 10% per annum (as per the Written Down Value (WDV) method) for buildings used for commercial purposes.

2. If the building is used for business or professional purposes, the depreciation can be claimed under Section 32 of the Income Tax Act.

3. Land is not considered a depreciable asset since it does not suffer wear and tear. Investment in land does not qualify for depreciation benefits under Indian tax laws.

4. If an investment property is let out, the rental income is taxed under the Income from House Property category. However, depreciation is not deductible under this head; instead, a standard deduction of 30% is allowed for maintenance and repairs.

5. If an investment property is sold, it attracts capital gains tax based on the holding period. Depreciation claimed earlier is considered for computing capital gains, and depreciation recapture (taxed as short-term capital gain) applies.

I hope you found this helpful.

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