How does depreciation deduction work in mortgages?
Home investors are said to be concerned that the depreciation deductions exceed mortgage amortization. This is because the depreciation remains flat but the amount of amortization rises, albeit slowly, over time, so the tax benefit of owning a piece of property fades away.
My question is, how does depreciation deduction work in residential mortgages on a conceptual level? So home is considered as a capital, so it depreciates over time (27.5 years, mil rate, depreciable base, etc). So does this mean, for the portion that depreciates each year, I am paying a lower property tax set by the government and for the remaining portion considered "undepreciated", I pay a normal property tax rate?
An example with explanation would be helpful.
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How does depreciation deduction work in mortgages?
Generally - not at all? Why should it?
Depreciation is a tax element based on purchase price. Mortgage is a credit based on outstanding balance.
Depreciation generally works like that: you have a loss from the loss of value of the home that is tax deductible (i.e. deducted from your income so you are taxed with a lower fictional income).
There is NO correlation to mortgage at all.
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