How to Depreciate a Condo
All physical property suffers from wear and tear, which leads to a depreciated value for the item. If you own investment property, depreciation affects the value of this asset. This depreciation has implications on how much your investments are taxed. If you're renting a condo as an investment property, the IRS will allow you to depreciate the property by a certain amount each month to reflect the decrease in its value.
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Instructions
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Calculate the value of the building at the time of purchase by subtracting the value of the land from the total amount paid. For example, if you paid $500,000 for the condo in July 2010, and the value of the land at that time was $100,000, then the value of the building in July 2010 was $400,000.
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Divide the value of the building at the time of purchase by 27.5 in order to obtain the annual depreciation. According to the IRS general depreciation system, residential real estate depreciates over the course of 27.5 years. So, if the value of the condo was $400,000, then the annual depreciation of the condo would be $14,454.45.
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Calculate the amount of depreciation for the condo's first year of service. The first month of service always counts as half a month only. So, if you purchased the condo in July 2010, it would have depreciated by five and a half months in the first year. Using the same example, divide the annual rate of depreciation, $14,454.45, by 12, and then multiply that figure by 5.5 to obtain a first year depreciation of $6,624.96.
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Add up each year of depreciation. If today is January 2012, your condo that was purchased in July 2010 has depreciated by $21,079.41 over the course of the 1 1/2 years. This figure comes as a result of adding $14,454.45 -- the annual amount of depreciation for 2011 -- to $6,624.96, the depreciation value from July 2010 to December 2010.
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