What is Depreciation?
Definition Depreciation is the process of deducting the cost of a business or investment asset over its useful life rather than all at once, reflecting wear and tear over time. Similar rules called amortization apply to intangible assets like goodwill and startup costs. When a depreciated asset is later sold, some of the prior deductions can be recaptured and taxed, often at higher rates.
Depreciation timing and recapture significantly affect the after-tax return on equipment and real estate, so it is a core lever in business and rental planning.