What is the general outcome of tax depreciation for an investor?

Tax depreciation plays a crucial role for investors, particularly in real estate, as it allows them to account for the decrease in value of their property over time due to wear and tear. This accounting technique enables investors to deduct a portion of the property's value from their taxable income each year.

When tax depreciation is applied, it leads to decreased taxable income, which in turn results in lower overall tax liability. By reducing the amount of income that is subject to taxation, investors can effectively decrease their annual tax bills, allowing them to retain more of their earnings. This mechanism is particularly beneficial for real estate investors, as properties typically require ongoing maintenance and improvements.

While tax depreciation does not directly reduce the initial investment or provide immediate cash flow benefits, the long-term effect of reduced tax bills enhances the investor's financial position over time. Additionally, the changes in taxable income and cash flow are indirectly influenced by how depreciation affects the overall financial health of the investment.