Hey there! Rental property depreciation is an important concept if you want to save on taxes.
In simple terms, it is a decline in the property’s value brought about by damage, obsolescence, or other circumstances. As a real-estate consultant, I must tell you some important facts about how does rental property depreciation work. Firstly, the cost of acquiring or purchasing a property is used to find how much of a piece of the asset will depreciate.
How Does Depreciating a Rental Property Work?
In India, the Income Tax Department sets the rate of depreciation, and it differs based on the kind of property. This decline or loss is subtracted from your taxable income which means you will save a considerable amount on taxes. However, there are a few effects you should know about this depreciation.
First, note that depreciation is only applicable to the building’s value and not the land. Land is generally known to appreciate over time.
The annual depreciation rate for residential buildings is 5% while for commercial buildings, it is 10%. This means you can claim a 5% or 10% depreciation annually on the cost of the building.
A negative effect of this process is in the resale value. When you sell the property, the depreciation is adjusted which can reduce the capital gains you earn from the property.
Let’s take an example: if you purchase a commercial property at Rs. 1 crore and you claim Rs. 10 lakhs in depreciation per year for five years, the cost of purchase decreases to Rs. 50 lakhs. Here, you save taxes but there’s a decrease in capital gains.
So, that’s all the basics about how does depreciation work on a rental property. Hope it gives you a fair bit of an idea. You can consider taking help from a legal expert to help you understand it better, and read
How Do You Calculate Depreciation on a Rental Property?I hope this helps.
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How Does Rental Property Depreciation Work?
AmayaK
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8 months
2025-03-26T10:15:45+00:00 2025-04-01T11:27:27+00:00Comment
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