Depreciation of Real Estate is the loss of value of an asset or building over time due to wear and tear, physical deterioration and overall age of the asset or building. Depreciation can typically only be applied to the building and not to the land, since land does not wear out over time.Property can also depreciate due to neglect or just ordinary wear and tear. An example of this would be if you had a leak in your plumbing and you did not do anything about it (or maybe knew nothing about it), only to find that the entire inside of the home was covered in black mold. This could cause your home to lose value or to depreciate in value. This would be considered physical depreciation. Another form of depreciation is functional depreciation. An example of this would be having an outdated house in an area of all newer homes that only has 1 bathroom with a shower and no tub and all the other homes have 2+ bathrooms with shower and tub.
Depreciation is also typically treated as an expense and figured as a line item on an income statement.
Residential property as depreciated over a 27 year period, while commercial properties can be depreciated over various different terms.
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