A rental property depreciation schedule is a report that clearly estimates or calculates the tax deductions a property investor can claim for the annual depreciation of their investment property, and details it out to them. This depreciation schedule is for the assets, buildings, or rental houses, and not bare lands. It is important to organize a depreciation schedule before the end of the financial year in order to maximize your deductions and claim everything that you are legally eligible for from the year. For precise and updated information, check out these Rental Property Depreciation Rates.
One does not need a tax depreciation schedule more than once for each investment property and is suggested to get their schedule soon after settlement to ensure that they’re claiming the maximum deductions straight away. If one makes certain changes to his property, you may need to update his rental property schedule.
Although, when it comes to depreciation, every component of a rental property can not be depreciated. As stated earlier, the value of land cannot be depreciated since it doesn’t wear out. Some regular necessary routine operations like property management fees, its maintenance, and the property tax cannot be depreciated either. They are instead, deducted from the gross rental income in the year when they take place. There are certain criteria listed one needs to meet, in order to depreciate the rental property. These are mentioned below:
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Must Own:
The person seeking depreciation for a property needs to own the property positively. In case the person does not own the property, he legally has no right to seek depreciation.
Income Generation:
The property for which depreciation is to be sought needs to be generating any sort of income. Not just this, but the income has to be coming from the tenants typically for an easier process further.
Useful Property:
Here comes the reason why depreciation of land cannot be sought. Since it cannot be determined whether a bare land is used or has ever been used in the past. So in order to seek depreciation legally, it is crucial and vital for the property to be useful without any question.
Time Period:
The property must positively have a useful life of more than a year. In case the time period has not reached a year, it is not possible for depreciation in its cost to be asked for yet since it still is a new and fresh property. In case the tenure of the property has exceeded the time of over a year, the owner is absolutely eligible to seek depreciation in its cost to gain some profits.
In the case of the real estate investors who fix-and-flip the property, ie, purchase the property, renovate it, and sell it at a profit, it is generally not possible for them to depreciate their property since it hasn’t been held for a year yet. Nor can wholesalers able to claim depreciation either since they never actually held the ownership of the real estate that they are wholesaling.