The concept of depreciation is simple: You bought a huge sofa for your home business. The minute you sit on it, the piece of furniture loses some of its worth. The passage of time causes the sofa to wear and tear, and each year that you own and use it, it costs less that it actually was. Measuring the reduction in worth of an asset is known as depreciation.
Depreciation is an accounting method of spreading the recorded cost of a physical or tangible asset over its useful life. It is something you use to write down the value of long-term assets that you acquire for business or investment purposes.
Why is it important to you as a property investor? Depreciation is one way of obtaining tax benefits. By depreciating assets, you can generate tax deductions and put off tax payments to a later time.