How to Save Money on Taxes by Tracking Property Depreciation

Businesses of every size and from every industry needs a base of operations. Real estate is one of the most important, and most costly, assets your company uses daily. Without property or office space, there’s no way you can run your business properly.

Whether your company only owns one office building or has dozens of warehouses to store product, tracking real estate and property depreciation can save you thousands of dollars on your taxes each year.

How Property Depreciation Differs from Fixed Asset Tracking

The real estate life cycle tends to be longer than almost any fixed asset life cycle. Since most properties are built to last, you’ll be able to rely on them for decades to come. Most fixed assets like tools and equipment have a life cycle of between 3-10 years.

Real estate also tends to be a much more expensive investment than tools or equipment, even large pieces of machinery.

Wear and tear also impact smaller fixed assets differently than facilities. Buildings tend to be more durable and can stand up to a lot of use in a short period. In comparison, equipment and tools tend to wear out with each use instead of simply over time.

Tax regulations allow you to take a write-off not only for owned real estate but also for the depreciation of those properties. When building values depreciate, their tax status changes and makes it so you pay less property tax. This can really add up if you have multiple properties.

While land value may go up, without regular repairs and upgrades, the overall value of the structure on that land will depreciate. You’ll want to create a way for you to track the value of the land your property sits on, as well as the overall value of the facilities on it.

Track Real Estate Depreciation on Your Company Balance Sheet

Property depreciation is something you track to improve the big picture of your business. It’s not something you’re going to think about every day since it doesn’t impact your daily work tasks. However, neglecting to track it will cost you thousands of dollars in property taxes.

You’ll want to track land value and property depreciation in the same place. That way you can track patterns. Have certain years brought you huge increases in land value, only to have it crash a few months later? Are certain times of the year harsher on your facilities than others?

Incorporating balance sheet data with asset records can help you see the big picture. Balance sheets can show you when certain assets depreciated fastest, but they won’t tell you why. Asset records often store information like what wear and tear it was subject to, times of higher demand, and scheduled (or neglected) maintenance requirements. When you match up this information to the numbers on your balance sheet, you can bring the data together and figure out what happened.

Creating this holistic picture can help you prepare for extreme weather or busier times of year that might drastically increase depreciation. Making efforts to reduce the wear these situations have on your facilities can ensure that it lasts the length of time expected. After all, you don’t want to suddenly lose newly acquired real estate because you weren’t prepared for the worst-case scenario.

Asset Panda’s customizable tracking platform means you can record everything related to tracking property assets. Our notifications to review projected depreciation will ensure you don’t get caught off guard by end of year reviews. Regular checkups will also provide you with a way to see if your property assets are lasting as long as they need, or if something is drastically reducing its lifespan.

Want to see how our software can automate your long-term tracking needs? Take a free guided tour today!

Bree Brouwer

Bree has held plenty of media- and marketing-related jobs over the years now, like working as a PR and marketing assistant to a Hollywood screenwriting coach, and writing content for three different digital marketing agencies.

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