InvestingAll terms starting with D
Depreciation
A tax deduction that lets an owner write off the cost of a rental building over a set recovery period.
Depreciation spreads the building’s cost, not the land’s, across a recovery period defined in the tax code, producing a paper expense that reduces taxable rental income without a cash outlay.
It is generally recaptured when the property is sold. Depreciation is also commonly added back when a lender calculates qualifying income from rentals, because it did not actually cost you cash.
Related terms
- NOI (Net Operating Income)Income after operating expenses but before debt service, taxes on income, and capital expenditures.
- Cash flowWhat remains each month after rent has covered operating expenses and debt service.
- 1031 exchangeA tax provision allowing capital gains deferral when investment property is exchanged for other like-kind investment property.
- Self-employed incomeIncome from self-employment, generally qualified on net figures after business deductions rather than gross receipts.
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