Property Depreciation
Most of us purchase our home as a place for use to live in day after day. It is our hope that our property will increase in value over time. That isn’t always the case though. It is common for property to depreciate before it gets to the point of increasing in value. It depends on the area you live in and the starting value of your home. It is important to remember that depreciation on your property and the value of your property are two separate concepts.
Property depreciation is the result of normal wear and tear that takes place on the property. Many property owners argue that their property hasn’t depreciated, in fact it is better than before due to remodeling and additions since they purchased it. However the information that is looked at is the age of the property not what it actually looks like today.
Make sure that you are aware of the tax laws and how it relates to your property depreciation. Many people don’t realize that you can take a deduction for the depreciation of rental property. Too many property owners end up paying taxes on the property when they sell it due to Depreciation Recapture laws. They apply even if you didn’t take the depreciation allowance you were entitled to along the way. In most instances the depreciation of a rental property can be taken for 27 Ω years.
If you have passed up the opportunity to claim property depreciation in the past you can file an amendment for recent years. You can have a tax preparer assist you with the process. You can also do it on your own using the tax schedules provided by the Internal Revenue Service for depreciation purposes.
You will also discover that your homeowner’s insurance has some variations when it comes to depreciation as well. If you own the home outright you aren’t required by law to have insurance coverage on it. However it is a good idea to protect your investment from loss. You can get coverage for the depreciated value of the home and this will save you money on insurance premiums. If you own money on the home then the insurance coverage has to be enough to cover the loans that remain on it.
