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How do I Calculate House Depreciation?
To calculate house depreciation, you need to calculate how much the property you own has declined in value since the time of purchase. Depreciation is not commonly thought of in houses, because depreciation generally refers to something declining in value as it is used, like a television or a car that automatically drops in price as soon as it becomes a used item. Still, it is possible for a home to depreciate in value.
Most depreciation calculators are used by businesses or those individuals taking a tax deduction to assess how much a given asset has dropped in value so a tax write-off for that loss may be taken. These depreciation calculators, therefore, will not generally be of much use to you in calculating house depreciation. House depreciation isn't necessarily caused by a house being lived in. Instead, a house depreciates or goes down in value if the house becomes outdated or less desirable due to a falling real estate market.
To calculate this number, you simply need to speak to a real estate agent and find out how much your home and the land it is on is worth at the present date. Compare this to how much the land was worth when you bought it. If the land or home is worth less now than when you purchased it, the difference is the amount that the house has depreciated in value.
One exception to this rule exists, however, and that is if you own a rental property. If you own a rental property or rent a part of your home, you can take depreciation for its use, much as a person would when taking a business tax deduction for any business expense. This form of house depreciation is appropriate here since the house and items within it can become worn out as the people living in it use it up. It is also appropriate because the house is being used for a business purpose, so this depreciation value can be deducted as a loss from income taxes.
To calculate house depreciation on a rental property, you must consider whether it is generating income for you and whether it has a limited amount of use, i.e. whether it will become worn out. It is important to note, however, that land is not something that ever depreciates. The land your house is built on is not going to become worn out with use or because a person is living there.
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![If a property is worth less than when it was initially purchased, it has depreciated in value.]()
By: PetrikIf a property is worth less than when it was initially purchased, it has depreciated in value. -
![A real estate agent should be able to tell you how much your home and the land is currently worth.]()
By: highwaystarzA real estate agent should be able to tell you how much your home and the land is currently worth. -
![Home depreciation may occur if surrounding homes in a neighborhood are sold for less money than purchase price.]()
By: EyeMarkHome depreciation may occur if surrounding homes in a neighborhood are sold for less money than purchase price.
Discussion Comments
Because of the number of available houses for sale and the shortage of qualified buyers looking to purchase, our home was valued at much less this year than it was ten years ago. I was heartbroken when I saw the depreciation rate of our home over the last five years.
Even though the drop in the value of our home is depressing, we will contain to maintain the house and make needed repairs and updates. Hopefully, the value will increase once the housing market returns to somewhere near what could be called normal.
More people are thinking about or have been thinking about house depreciating since the drop in the world economy and falling real estate markets over the last several years. Not so long ago, practically any house you bought was guaranteed to increase in value, and significantly in many cases.
A person who operates rental property or anyone considering purchasing property for this purpose should consider the significance of rental property depreciation.
It is easy to focus on how much you are earning with the monthly rent, but while you are collecting rent, the value of your property may be decreasing because of wear and tear created by the tenants and because of the natural decay of the structure.
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