What is the purpose of property depreciation in tax accounting?

The purpose of property depreciation in tax accounting is to recover the cost of an investment. Depreciation allows property owners to deduct a portion of the property's value from their taxable income over a specific period. This deduction recognizes that the property may lose value over time due to wear and tear, obsolescence, or other factors. By allowing property owners to recover the cost associated with their investments through depreciation, the tax system provides a financial incentive for property investment and management.

This concept is particularly important for landlords and investors who must account for expenses associated with maintaining and operating property. Depreciation helps to allocate the cost of the property over its useful life, ultimately providing potential tax savings that can improve cash flow and overall financial performance. Understanding how depreciation works is essential for effective property management and tax planning.