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Published on: November 23, 2021 at
How to Calculate Real Estate Depreciation in the US vs Capital Cost Allowance in Canada | Excel
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How to Calculate Real Estate Depreciation in the US vs Capital Cost Allowance in Canada | Excel
Depreciation of real estate assets is tax deductible. In Canada, depreciation in real estate is called the capital cost allowance, or CCA. United-States Step 1: Calculate the depreciable base, which is the market value of the building (NOT the value of the land). Step 2: Straight line method 39 years for non-residential properties 27.5 years for residential properties in the US It’s just 1/39th of the value of building, not 1/39th of the land. The advantage of doing a straight line depreciation is that the amount is constant. Canada (Capital cost allowance) Depreciate your building by 2% of the building's value in year one. Then 4% in perpetuity. Why the 2% in year 1? 1. Usually, properties have greater value at the time of the acquisition, and depreciate over time. The 2% rate for year 1 softens the curve. It encourages a longer hold, instead of just flipping the property. 2. The 2% rule allows for less timing of the market. Since the normal 4% depreciation applies at the beginning of each year, an investor can buy a property in the last days of the year, get the 4%, then get another 4% a few days later. The 2% rule mitigates the perks of timing the market. In the end, the difference between Canadian and American real estate depreciation is how constant it is. In the US, it’s just the value of the building divided by 39. And that amount is the depreciation for each year. It’s constant and predictable. In Canada, since it’s a percentage, it holds more weight as the property is valued higher. As time passes, the property loses value and the percentage becomes more meaningless. 4% of 1000 is much more than 4% of 800. Thanks for watching and supporting the channel. Don’t hesitate to reach out to us in the comment section if you have any questions. Disclaimer. The content in these videos shall not be construed as financial advice. It is your responsibility to verify all information yourself. This is a Youtube video for entertainment purposes ONLY. Do not make investment decisions based on our videos. No copyright infringement is intended. Let's get rich. Let's finagle this bagel.
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