Depreciation is any loss in the value of a property over time from any cause.
Tax laws allow investors to depreciate the value of improvements. The term "depreciation" is often used regarding income taxes. This depreciation reduces taxable income and is usually figured using the straight-line method. This method assumes depreciation occurs at an even rate over the structure’s economic life or the time period over which the improvement can be profitably utilized. Once the replacement or reproduction costs of the existing improvements have been estimated, the next step is to subtract the depreciation which the property has suffered.