How Does Depreciation Work in Real Estate?

In this real estate investing tutorial video, we'll go over how depreciation works for investment properties, and how it relates to net operating income, cap rates and cash on cash returns.

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We'll do a real world example using Hauseit's Rental Property Calculator, Cap Rate Calculator and Miami Buyer Closing Cost Calculator for a hypothetical investment condo purchase in Miami, Florida.

We'll also show you in a spreadsheet just how depreciation helps lower your taxable income, and how big of a deduction it can be against your rental property's net operating income when it comes to income taxes.

Remember that this is not accounting or financial advice, and you should consult your own tax adviser. Even though the accountants we've spoken with have said that condos can be fully depreciated over 27.5 yrs due to the diminimus value of the land component for a condo in a hundred plus unit building, please speak with your own accountant to confirm this is applicable for your situation.

Remember that it can be quite difficult for people employed in other trades to be treated as "qualified real estate professionals" for tax purposes, as there are many tests involved such as the person needing to spend more than half of all time on trades on the real estate trade, and to spend in excess of a certain number of hours (typically 750) per year materially participating in real estate. Speak with your accountant on this, as the tax benefits are very beneficial for rental properties that generate a loss due to depreciation.

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Hauseit Group LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
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