What is the term for the deduction that allows an investor to write off the cost of their investment in income-producing property?

The correct term for the deduction that allows an investor to write off the cost of their investment in income-producing property is tax depreciation. This concept refers to the process by which an investor can gradually deduct the cost associated with the wear and tear, deterioration, or obsolescence of the property over a specified period.

In real estate, the Internal Revenue Service allows property owners to depreciate their investment properties, which means that a portion of the purchase price can be deducted from taxable income each year, effectively reducing the taxable income and thereby the tax liability. This deduction is particularly beneficial because it applies to physical assets and is a means of acknowledging that these assets lose value over time due to usage and age.

Tax deductions generally allow individuals or businesses to subtract expenses from their income before calculating tax owed, but they do not specifically refer to the systematic expense related to property investment. A tax credit instead provides a dollar-for-dollar reduction of income tax owed, while a tax exemption refers to income or transactions that are not subject to taxation at all. These options do not specifically cover the cost recovery method through depreciation for investment properties.