5. Depreciation on real estate investments Depreciation is a tax deduction that recognizes an asset's in value due to wear and tear and obsolescence. Remember the following real estate-related IRS Guidelines when answering the questions that follow regarding Eileen's and Lei's real estate holdings. Be sure to round each of your answers to the nearest whole dollar. IRS Depreciation Guidelines Type of property Land Number of years allowed 0.0 Residential property 27.5 Nonresidential property 39.0 Eileen's Real Estate Depreciation and Tax Consequences Eileen invested $250,000 in real estate ($212,500 for an apartment building and $37,500 for the land). The property enjoys full occupancy; tenants include families, students, and seniors. Eileen can deduct in depreciation per year on her taxes. Eileen's rental income in the first year of ownership was $30,000. By occupying the 25% income tax bracket, she will save taking the depreciation deduction. in taxes by Lei's Real Estate Depreciation and Tax Consequences Lei invested $850,000 in real estate ($637,500 for an office building and $212,500 for its land). The property enjoys full occupancy; tenants include an assortment of businesses. Lei can deduct in depreciation from her taxes. By the end of her first year of ownership, Lei earned $127,500 in rental income. If she pays income taxes at the rate of 25%, then she will save in taxes by taking the depreciation deduction. Amy's Real Estate Depreciation and Tax Consequences Amy purchased 10 acres of land in the country for $250,000 as an investment. She leases the property to a local nature club whose members use it for hiking and bird watching. As a result, Amy can deduct in depreciation from her taxes. If the gross annual rental income on Amy's property is $25,000 and she is taxed at the marginal rate of 25%, then she will be able to save on her taxes as a result of the depreciation deduction