On what basis can residential properties be depreciated according to tax law?

Residential properties can be depreciated using the straight-line basis according to tax law, which is a method that allows property owners to evenly distribute the cost of the property over its useful life. In the case of residential rental properties, the Internal Revenue Service (IRS) specifies a useful life of 27.5 years for depreciation purposes. This means that an owner would deduct an equal amount of the property's cost each year for 27.5 years, which provides a simplified approach to accounting for the property’s wear and tear over time.

Utilizing the straight-line method aligns with tax regulations and offers predictability in financial planning and reporting. By spreading the depreciation evenly, property owners can effectively manage their income taxes over the period they hold the asset, as the depreciation deduction can reduce taxable income annually. This method is straightforward, making it less complex than other methods, such as declining balance or units of production, which may not be applicable to residential properties.