[trianglesphere]

It's the distinction between the building and the land. Buildings usually depreciate over time, but the land appreciates. In the bay area, the value of the land is significantly more than the building which is why so many people tear down houses and rebuild. Where land is cheaper people don't tear down and rebuild houses that have more life in them when they buy a house.

Residences are mainly exempted from depreciation, but commercial real estate is allowed to be depreciated because buildings do have a useful life.

[njarboe]

Although recently in the Bay Area construction costs have skyrocketed so much that in the last 5 years my home replacement cost (for insurance) has about doubled causing the land value to actually drop.