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Real Estate Word of the Day: Depreciation

Depreciation is an accounting method that allows investors to spread out the cost of an asset over its useful life. For real estate, this typically means spreading out the cost of a building (excluding the land) over a specified period. Depreciation is crucial for property owners because it can provide significant tax advantages by reducing taxable income.

In real estate, depreciation applies primarily to income-producing properties, such as rental buildings, commercial properties, and other structures used for business purposes. The land itself is not depreciable because it does not wear out or become obsolete. However, buildings, improvements, and certain property components do. The Internal Revenue…

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