What does depreciation in real estate signify?

Depreciation in real estate signifies a loss of value due to various factors such as wear and tear, physical deterioration, or changes in market conditions. It recognizes that over time, properties may lose some of their initial value because of these influences. This concept is particularly important in accounting and taxation, as it allows property owners to deduct the decline in value from their taxable income, effectively reflecting the reality of long-term property ownership.

While depreciation does not imply a permanent reduction in property value, it represents the financial accounting aspect that acknowledges these decreases when assessing the worth of an asset. Understanding depreciation is critical for real estate developers, investors, and property managers when analyzing property performance and making investment decisions.