Look for land allocation, recovery period, placed-in-service date, ownership share, passive-loss limits, and recapture exposure.
Plain-English term
Depreciation
A tax deduction for the wear-down of a building over time.
Definition that survives review
Depreciation lets real estate owners deduct portions of building basis over time under tax rules. In a real review, translate the term into the cash flow, priority, deadline, tax treatment, status test, or control right it changes.
Use it to understand tax timing on building basis, not investment quality. If you cannot point to the exact document or calculation behind it, you have recognized the vocabulary but not yet understood the deal.
Why it matters
It can shelter cash flow on paper, but it is still tax timing. Recapture and passive-loss rules can show up later with a bill. This is why the term is not finished until you know who calculated it, what period it covers, and what happens if the friendlier definition is wrong.
A useful glossary entry should show where the word appears, what input changes it, and which connected term changes the answer next: Cost segregation, Passive losses, 1031 exchange.
How to use it in diligence
Depreciable basis / recovery period = annual depreciation, before special rules.
Land is not depreciated. Building basis is. That split matters before anyone celebrates the deduction.
Calling depreciation free money instead of a rule-driven timing benefit.
Proof checklist
- The source period, calculation basis, and owner of the number are named.
- The term reconciles to the PPM, operating agreement, lender documents, tax schedule, underwriting model, or verification record.
- The downside version is visible before the optimistic version gets trusted.
Example, trap, question
Land is not depreciated. Building basis is. That split matters before anyone celebrates the deduction.
Calling depreciation free money instead of a rule-driven timing benefit.
- what basis is depreciable, what schedule applies, and what your CPA says happens on sale.
- What source document, schedule, or third-party evidence proves this term in this specific deal?
- Which connected term changes the answer next: Cost segregation, Passive losses, 1031 exchange?
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