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Depreciation of Land & Buildings

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Depreciation of Land & Buildings

Buildings and land represent substantial investment assets in corporate balance sheets. As an individual taxpayer and property owner, correctly depreciating and valuing buildings and land can help you prepare accurate financial and tax reports.

  1. Depreciation Defined

    • Depreciation is a business method that allows you to recover the cost of a tangible asset, such as buildings, over several years. You may only depreciate fixed assets, such as equipment, property and machinery.

    Building Depreciation

    • The Internal Revenue Service (IRS) allows a taxpayer to recover the cost of non-residential property over 31.5 years. For instance, if you own a building valued at $31.5 million, the annual depreciation expense is $1 million ($31.5 million divided by 31.5).

    Land Depreciation

    • IRS guidelines and financial accounting rules do not allow land depreciation. You may recover the cost of land when you sell the property.

    Other Considerations

    • Properly depreciating assets is an important element in financial planning decisions because depreciation expense helps lower taxable income. This expense also provides a financial incentive because you do not for it, unlike salaries and other expenses.

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