Deducting the cost of a business asset over its useful life rather than all at once. Buildings, equipment, and vehicles are depreciated; land is not.
Depreciation is a real deduction with no cash outlay, which is why real estate can show a tax loss while producing cash. When the asset is sold, prior depreciation is recaptured at ordinary or 25 percent rates.
When you sell a depreciated asset for more than its adjusted basis, the gain up to the depreciation taken is taxed as ordinary income (or at 25 percent for real property).
Last reviewed September 15, 2026. Tax rules change; confirm current law before acting.
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