How Depreciation Benefits Real Estate Investors and Business Owners – Simple Version

When I began my real estate business, I did not understand “depreciation” until I saw the huge benefits at tax time.

Then I really began to pay attention.

Depreciation: A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached.

There are several accounting methods that are used in order to write off an asset’s depreciation cost over the period of its useful life.

Because it is a non-cash expense, depreciation lowers the company’s reported earnings while increasing free cash flow.