Depreciation of Investment

Depreciating a capital investment means lowering its book value.

Corporate investments help improve a company's competitive standing in the short and long terms. A firm may also invest in internal programs or external business opportunities to increase profit levels.

Depreciation Defined

Depreciating an investment means recovering the cost of the investment over a specified number of years. Accounting rules and Internal Revenue Service (IRS) guidelines provide guidance on depreciation terms for different investment types. For example, a taxpayer may depreciate office furniture and residential property over seven and 27.5 years, respectively.

Investment Defined

In depreciation accounting parlance, an investment is an asset, or economic resource, that a company owns and intends to use in operating activities. Examples include long-term assets, such as property, equipment, land and machinery, and intangible resources, such as patents, software and trademarks.

Other Considerations

Accounting standards and IRS rules do not allow land depreciation. However, a land owner may record an impairment loss if the owner believes a piece of land has lost value because of adverse economic or environmental developments. For example, a piece of land may lose value if there's an earthquake eruption in the immediate vicinity.

References

• Advantage Software LLC: Depreciation of Real Estate
• Real Estate Owner: Depreciation of Furniture and Equipment