what is depreciation?

Depreciation refers to the decrease in the value of an asset over time due to wear and tear, obsolescence, or other factors. In the context of real estate, depreciation typically pertains to the decrease in the value of a property or its components over time. This reduction in value is often accounted for as an expense for tax purposes, allowing property owners to deduct a portion of the property's value each year to reflect its decreasing worth.

Depreciation is a non-cash expense, meaning it does not involve an actual outlay of cash but rather represents the allocation of the asset's cost over its useful life. It's important for property owners to understand depreciation as it can impact their tax liability and overall financial performance.