Accelerated depreciation, applied specifically to real estate, allows property owners to deduct larger amounts of a property’s cost basis earlier in its life, reducing current tax liability. This strategy involves classifying building components into different depreciation categories based on their shorter lifespans (5, 7, or 15 years) rather than depreciating the entire property over the standard 27.5 years for residential or 39 years for non-residential buildings. For example, certain interior improvements, land improvements, and personal property assets within a rental unit can often qualify for these shorter depreciation schedules.
This approach offers significant tax advantages, increasing cash flow for investors and potentially boosting overall investment returns. By front-loading depreciation deductions, investors can minimize their current tax burden, freeing up capital for reinvestment, debt reduction, or other financial objectives. This tax strategy has been available for many years, codified in tax law to encourage real estate investment and economic growth.
