There are different calculators available in the real estate software to calculate real estate property depreciation. Some even use this to figure rental income. The basic core calculation however is for straight real estate depreciation, as the acronym indicates, it’s a straight line decline in real property value. The depreciation of a property is distributed evenly over its useful life.
A common form used in real estate property depreciation is the gross value form, whereas other more complex forms like the amortization schedule, and the re-assessment schedule are more suitable to calculate depreciation. The standard form used is the Real Estate Settlement Calculator. This calculates the gross value of the asset and sales price. By adding sales price and rental income, one gets the gross property value.
The rate of property depreciation is generally used in computing capital gains tax (GST). It is also calculated as the weighted average cost of capital used in computing the capital gain rate, and if the current value of the asset falls below the replacement cost, then the asset would be depreciated over time. A few real estate properties are held by multiple beneficiaries and it would be impossible to determine the depreciation at the time of death, or during the period that the beneficiaries would hold control of the asset. In such cases, the executor or administrator of the estate calculates the discounted value of the asset using the current market value for a prescribed period of time. It can also be calculated by the estate administration.
The commercial real estate property depreciation uses a different method called the fixed asset method, where the assets’ depreciation is based on its age. The longer the asset’s age, then the lesser would be the depreciation. Another alternative for calculating real estate property depreciation is the cost per acre. This method includes all of the expenses involved in leasing the real estate property and does not include any specific costs for improvements made by you or your predecessors.
There are several financial publications that can help you learn how to calculate depreciation for real estate. You can also consult experts in the field, such as real estate appraisers and real estate agents, for advice regarding the methods to use when calculating depreciation for the purpose of computing the capital gain tax (CGT). You can also take a look at several real estate investment books to help you decide the method to use. These books may provide information about various methods and their details as well as their calculations.
As mentioned earlier, the purpose of depreciating real estate property is to ensure the capital gain tax (CGT) is lower than the amount paid as taxes. Most people do not like to pay taxes especially when they are earning plenty and still have more to give. Real estate depreciation is a great way to keep more of your money by ensuring that your assets will eventually appreciate in value. The main problem with using depreciating strategies is that it takes a long time before you start seeing the results from your investments. It will only be after the passage of time that you will realize the profits you have been generating from your real estate properties.