Final answer:
Residential real property is depreciated under MACRS over a 27.5-year period, offering property owners tax breaks for the depreciation of the property's value, minus the land. This forms part of the calculation for the property's rate of return and has implications on the investment and neighborhood vitality.
Step-by-step explanation:
Under the Modified Accelerated Cost Recovery System (MACRS), residential rental property is depreciated over a specified recovery period. The Internal Revenue Service (IRS) has determined the recovery period for residential rental real estate to be 27.5 years. This means that a property's cost, excluding the value of land, is depreciated evenly over this time frame, providing the property owner with a deduction for the 'wear and tear' of the building as it ages.
Depreciation is an important topic for anyone involved in real estate investing, as it influences the rate of return and can have tax implications. It's also pertinent to understand the impact this has on neighborhoods and the cycle of housing decay and disinvestment, particularly in the context of residential real estate serving as both a financial and nonfinancial investment.