Depreciation (Real Estate)

Depreciation, in real estate, is a tax accounting concept, not a description of what is actually happening to a property in the real world. It lets a landlord deduct a portion of the property's cost from taxable rental income every year, spread out over a set number of years fixed by tax law. This reduces the tax owed on rental income today, even if the property's actual market value is holding steady or rising.

This is the single most confusing thing about depreciation for new landlords: a property can be "depreciating" for tax purposes and appreciating in real market value at the same time. Depreciation runs off the property's original cost (its "cost basis"), not its current selling price. Unrealized gain, by contrast, tracks the property's actual market value rising above what you paid for it. These are two separate measurements sitting on the same property: one is a paper deduction based on cost, the other is a real economic gain based on market value. IONROI tracks unrealized gain (current market value minus purchase price) as its own metric precisely so it never gets confused with a tax depreciation schedule.

Depreciation rules, and even the concept itself, vary sharply by country, so treat the following as general information, not tax advice.

In the United States, the IRS lets landlords depreciate residential rental buildings over 27.5 years and commercial buildings over 39 years, both using the straight-line method (an equal deduction each year). Only the building and qualifying improvements can be depreciated; land is never depreciable, since land does not wear out. For example, if a landlord buys a rental home for $300,000 and the land portion is valued at $60,000, the depreciable basis is $240,000, giving an annual deduction of roughly $8,727 ($240,000 divided by 27.5) under the standard schedule. One detail that catches many landlords off guard: when the property is eventually sold, the IRS "recaptures" the depreciation you claimed, taxing that portion of your gain at a rate of up to 25% (known as unrecaptured Section 1250 gain), separate from the ordinary capital gains tax on the rest of the profit.

In the UAE, individuals currently pay no personal income tax, so there is no individual tax return on which to claim a depreciation deduction against rental income in the first place. UAE corporate tax, introduced in 2023, generally does not apply to a natural person's personal rental income either, as long as the property is held and rented in a personal capacity without a business licence. That exclusion can change if the same person runs the rental as a licensed business activity, so it is worth confirming current guidance if that applies to you.

In India, individual landlords do not use a depreciation deduction on their rental property at all. Instead, "income from house property" rules allow a flat standard deduction of 30% of the property's net annual value under Section 24, covering repairs and upkeep without needing to itemise costs. Depreciation under Section 32 does exist in Indian tax law, but it applies to assets used in a registered business or profession, not to an individual's rented house property.

Because the rules differ so much by country and personal situation, always confirm current depreciation and recapture treatment with a qualified tax professional in your jurisdiction before relying on it for tax planning.