How the Bank Sees Your Real Estate Purchase (and Why It Matters for Your Taxes!)

When you purchase a rental property, did you know your tax basis includes the debt, not just your out-of-pocket cash? That’s right—the IRS allows you to calculate depreciation based on the full purchase price, including what the bank lends you. This is one of the most powerful wealth-building tools in real estate.

But here’s where it gets even better. When you buy a property, you’re actually purchasing four types of assets:

1.  Land (not depreciable)

2. The Building 

(depreciated over 27.5 years for residential, 39 years for commercial)

3. Land Improvements 

(think sidewalks, fences, and landscaping—depreciated over 15 years)

4. Building Contents 

(appliances, fixtures, and carpet—depreciated over 5-7 years)

The goal? Accelerate depreciation on items with shorter lifespans, reducing taxable income and increasing cash flow. That’s why savvy investors leverage strategies like cost segregation to maximize tax benefits.

Want to dive deeper? Here are some valuable sources to explore:

- IRS Publication 946 – How to Depreciate Property

- IRS Guidelines on Rental Property Depreciation

- Cost Segregation Overview – Journal of Accountancy

So, next time you hear someone say, "Real estate is all about location," remind them—it’s also about leveraging debt, depreciation, and tax strategies to build long-term wealth.

Are you using depreciation to your advantage? Drop a "1" in the comments if this sparked a new perspective!

🔹 Disclaimer: This content is for educational and informational purposes only, based on my experience and insights. It is not financial, legal, or investment advice. Results vary based on individual effort, resources, and strategy. Please do your own due diligence and consult a qualified professional for personalized guidance.