[OPE-L:1835] Re: Do houses depreciate?

John R. Ernst (ernst@pipeline.com)
Fri, 19 Apr 1996 09:17:41 -0700

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According to the U.S. tax code, depreciation of houses is strange.

Case 1. I own a house and rent it out to others. The house depreciates
over a number years to the extent allowed by the code. When I

sell, depreciation is taken into account. This has nothing to
with how well I maintained the place. (Land is excluded from
the depreciation process.) A firm owning real estate shows
quite a bit of depreciation on its tax return. Depreciation
also be part of its fin. statement.

Case 2. I own a house and live in it. It does not depreciate according to

the code. When I sell, the loss is not tax deductible, but
gain is taxable.

It would seem that depreciation charges are social and not entirely
related to physical causes.


Since the assests of many fin. instit. are made up of real estate, drops
housing prices are a threat. Folks tend to walk away from loans when
a steep drop happens. Efforts to keep housing costs from falling would
seem to be in the interests of all holding the notes. Further, the cost of
housing would seem to depend upon the degree to which rent is capitalized.
Demand for housing, thus, plays a large role in the price.