What is Depreciation?

Depreciation is a reduction in the value of an asset with the passage of time, due in particular to wear and tear.

In regards to rental real estate, depreciation is an annual expense that the owner of the asset gets to claim. Because depreciation is meant to track the deterioration of the asset, the owner of the asset claims an annual expense each year the asset is owned.

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The owner does not have to pay anything in order to claim depreciation expense each year because the owner of the asset paid everything upfront when he/she purchased the asset.

Many people refer to depreciation as a phantom expense – one that you get to claim simply because you own an asset.

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