What Happens When Your Rental Property Is Fully Depreciated? A Guide for Real Estate Investors
Depreciation is a valuable tax benefit for rental property owners, allowing them to deduct the cost of their property over time. However, once a property is fully depreciated, it's essential to understand the implications for your investment strategy and tax planning. ๐ Understanding Rental Property Depreciation The IRS permits property owners to depreciate residential rental properties over 27.5 years using the Modified Accelerated Cost Recovery System (MACRS). This means that each year, you can deduct a portion of the property's cost (excluding land value) from your taxable income. Depreciation begins when the property is placed in service and continues until you've recovered the property's cost basis or retire it from service, whichever comes first . ๐ What Does "Fully Depreciated" Mean? A property is considered fully depreciated when the total depreciation deductions equal the property's cost basis (excluding land). At this point, you can no lon...