Most of the time, when you hear the word “depreciation,” it’s not a good thing. It means that something you had, that was of value, is suddenly of less value When it comes to your taxes, however, depreciation can actually be a good thing. When you owe taxes, the so-called “depreciation deduction” can help you to reduce tax liability.
The first thing you need to understand is what, exactly, “depreciation” means. This term refers to income tax deductions that property owners can take advantages of. Their assets, meaning their properties, depreciate over time, and thus it makes sense that their taxes should too.
The IRS has an annual allowance for property deterioration already, though, as with all things related to the IRS, there are regulations and exceptions. In general, though, as long as the property is owned by the taxpayer and isn’t being used on rented or borrowed assets, it’s fair game. Also, keep in mind that the properties to have to have existed for over a year and be used for business or income related purposes.
Once you have determined that you do, indeed, qualify for a depreciation benefit, your next step is to determine what the benefit amount is. Generally, this is the stage where it’s best to consult a qualified tax advisor. However, do be aware that the following factors all go into determining the depreciation benefit:
l The property’s original price
l The type of depreciation that has occurred
l How long it would feasibly take to restore the property to its original value, if possible
Your tax professional can help you to navigate and understand these factors and to thus apply for the correct depreciation benefit, so if you are a property owner, seek help today to qualify for this excellent benefit and save money on your taxes.