Depreciation, as it is normally calculated, is somewhat nonsense on properties, especially over the past decade as they have increased by leaps and bounds in value.
But it's not just a cute game we play to get out of taxes
It's an accounting strategy that we are using for all fixed assets. All things have a useful life, and we just need a way to account for that. Not all improvements to a property will be durable. (Only land has durable value, which is why we only depreciate the portion of the purchase price that was for the improvements to the land)
The new roof we put on a property has a limited useful life. The kitchen remodel has a limited useful life.
If a property is not well maintained, then it may not be worth much in the distant future. If it is well maintained it may be worth more later.
If there is residual value, then we pay the tax when we recapture that value at a sale. If there is no value left at the end, then we don't.
Also, not all houses exist in San Francisco, where a dilapidated tool shed can be worth $1MM and be expected to double every year. Many markets are not very hot in terms of price appreciation. In my midwest market, I'm not even sure there has been any notable appreciation in the last decade. (And if there was, please don't let the county assessor know.)
It's an accounting strategy that we are using for all fixed assets. All things have a useful life, and we just need a way to account for that. Not all improvements to a property will be durable. (Only land has durable value, which is why we only depreciate the portion of the purchase price that was for the improvements to the land)
The new roof we put on a property has a limited useful life. The kitchen remodel has a limited useful life.
If a property is not well maintained, then it may not be worth much in the distant future. If it is well maintained it may be worth more later.
If there is residual value, then we pay the tax when we recapture that value at a sale. If there is no value left at the end, then we don't.
Also, not all houses exist in San Francisco, where a dilapidated tool shed can be worth $1MM and be expected to double every year. Many markets are not very hot in terms of price appreciation. In my midwest market, I'm not even sure there has been any notable appreciation in the last decade. (And if there was, please don't let the county assessor know.)