How Does Real Estate Depreciation Work on Taxes? Texas Investor’s Guide
Dallas – October 2, 2025: For real estate investors in Texas, one of the most powerful tax advantages available is depreciation. Whether you own a duplex in Dallas (75201), an apartment complex in Houston (77002), or a single-family rental in Austin (78701), understanding how depreciation works can help you significantly reduce your tax liability while maximizing returns.
- How Does Real Estate Depreciation Work on Taxes? Texas Investor’s Guide
- What is Real Estate Depreciation?
- Example: How Depreciation Saves on Taxes
- Types of Depreciation Benefits for Texas Investors
- Depreciation Recapture: The Catch
- Current Market Insights for Texas Investors
- Geo-Targeting: Best Texas Markets for Depreciation Advantages
- External Resources for Texas Investors
- Q&A: How Does Real Estate Depreciation Work on Taxes?
- Why GHC Funding is the Go-To Lender for Texas Investors
- Final Thoughts
- Call to Action
- Get a DSCR loan quote in Texas.
This guide will explain how depreciation impacts real estate taxes, outline current financing options, and show how working with GHC Funding can help you leverage both tax and lending benefits to scale your portfolio.
Texas Investor’s Guide
- What is Real Estate Depreciation?
- Example: How Depreciation Saves on Taxes
- Types of Depreciation Benefits for Texas Investors
- Depreciation Recapture: The Catch
- Current Market Insights for Texas Investors
- Geo-Targeting: Best Texas Markets for Depreciation Advantages
- External Resources for Texas Investors
- Q&A: How Does Real Estate Depreciation Work on Taxes?
- Why GHC Funding is the Go-To Lender for Texas Investors
- Final Thoughts
- Call to Action
- Get a DSCR loan quote in Texas.
What is Real Estate Depreciation?
Depreciation is a tax deduction that allows investors to recover the cost of an income-producing property over its “useful life.” While real estate values often increase, the IRS assumes properties wear down over time.
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- Residential Properties: 27.5-year depreciation schedule
- Commercial Properties: 39-year depreciation schedule
This means you can deduct a portion of your property’s value each year—even as it appreciates in Texas’ booming real estate markets.
Example: How Depreciation Saves on Taxes
Suppose you purchase a duplex in Dallas for $500,000. Land value (non-depreciable) is $100,000, leaving $400,000 for depreciation.
- $400,000 ÷ 27.5 years = $14,545 annual deduction
That’s $14,545 you can subtract from your taxable income every year, potentially saving thousands in taxes.
Types of Depreciation Benefits for Texas Investors
1. Straight-Line Depreciation
The most common method, spreading deductions evenly over the asset’s life.
2. Accelerated Depreciation (Cost Segregation)
By separating fixtures, appliances, and renovations, you can claim larger deductions in early years. This is especially valuable in fast-growing markets like Austin and Houston, where cash flow is key.
3. Bonus Depreciation
Temporary tax laws have allowed investors to write off 100% of qualified property improvements in the first year.
Depreciation Recapture: The Catch
When you sell a property, the IRS requires you to “recapture” depreciation by taxing it at a maximum rate of 25%. However, strategies like 1031 exchanges can defer these taxes while letting you scale into larger properties.
Current Market Insights for Texas Investors
Interest Rates (as of October 2025):
- DSCR Loans: 7.25% – 8.75%
- Bridge Loans: 9% – 11.5%
- SBA 7a Loans: Prime + 2.75% (~11.25%)
- SBA 504 Loans: 6.75% – 7.5% fixed rates
Loan Requirements for Texas Investors:
- DSCR Loans:
- Based on rental income, not personal W-2s
- LTV up to 80%
- Minimum DSCR: 1.0 – 1.25
- Properties: SFR, duplex, triplex, fourplex, multifamily
- Entities accepted: LLCs, corporations
With GHC Funding, Texas investors can secure financing without traditional income checks, making it easier to scale portfolios while fully leveraging depreciation benefits.
The Ultimate DSCR Loan for Rental Property Quiz
Are you looking to expand your real estate investment portfolio? A DSCR loan might be the perfect tool to help you achieve your goals without relying on traditional income documentation. Test your knowledge with this quiz to see if you're ready to master the intricacies of a DSCR loan for rental property.
Geo-Targeting: Best Texas Markets for Depreciation Advantages
- Dallas (75201, 75204): Strong multifamily rental demand with consistent appreciation.
- Houston (77002, 77019): Medical and energy sectors drive long-term tenant stability.
- Austin (78701, 78704): High rental rates make depreciation especially valuable for offsetting income.
- San Antonio (78205, 78209): Affordable entry points for first-time investors.
- Fort Worth (76102, 76107): Growth in mixed-use developments and strong rental yields.
External Resources for Texas Investors
- Texas Real Estate Commission (TREC) – Licensing and compliance
- Texas Association of Realtors – Market insights and investor tools
- Texas Comptroller of Public Accounts – Tax rules and state guidance
- Houston Association of Realtors – Market data and research
- North Texas Real Estate Investors Association – Networking and investor education
DSCR Loan IQ Quiz!
Test your knowledge of Debt Service Coverage Ratio (DSCR) loans!
Q&A: How Does Real Estate Depreciation Work on Taxes?
Q1: Can I depreciate land in Texas?
A: No, only the building and improvements are depreciable.
Q2: What happens if I sell my property?
A: You’ll owe depreciation recapture tax unless you use a 1031 exchange to defer it.
Q3: Can short-term rentals be depreciated?
A: Yes, if the property is used as a business and not solely for personal use.
Q4: How does an LLC affect depreciation?
A: LLC ownership doesn’t change depreciation rules—it only affects liability and tax structures.
Q5: Do I need to make money to claim depreciation?
A: Even if your property runs at a loss, depreciation can create additional paper losses that offset other income.
Q6: How does financing affect depreciation?
A: The loan type doesn’t change depreciation. However, DSCR loans from GHC Funding allow you to scale faster while still claiming full depreciation benefits.
Q7: Can improvements be depreciated?
A: Yes, capital improvements are depreciated, while repairs are deducted immediately.
Quiz on Texas Rental Property Laws
Test your knowledge of the regulations and legal considerations for managing a Texas rental property. From security deposits to eviction notices, this quiz will help you understand the key responsibilities of landlords in the Lone Star State.
Why GHC Funding is the Go-To Lender for Texas Investors
- Entity-Friendly Financing: DSCR and SBA loans allow LLC ownership.
- No Income Verification: Approval based on property performance, not personal tax returns.
- Flexible Terms: LTVs up to 80% with competitive rates.
- Market Expertise: GHC Funding specializes in Texas markets from Dallas to Houston and beyond.
Test Your Texas Investor Savvy!
Texas, the Lone Star State, is a land of vast opportunities, from its booming urban centers to its sprawling energy fields. For real estate investors, Texas offers a dynamic market driven by continuous population growth, diverse industries, and a business-friendly environment. Whether you're considering your first venture into investment properties using no income verification rental property loans for new investors or expanding an existing portfolio, understanding the Texas landscape is invaluable.
Put your knowledge of the Lone Star State to the test with our quick quiz!
Final Thoughts
So, how does real estate depreciation work on taxes? In short, it allows Texas investors to deduct a property’s cost over time, reducing taxable income and enhancing long-term ROI. Combined with strategic financing from GHC Funding, depreciation can supercharge your portfolio growth.
Call to Action
👉 Ready to leverage depreciation benefits with the right financing in Texas?
Visit GHC Funding or call 833-572-4327 today to explore DSCR loans, SBA financing, bridge loans, and alternative real estate funding solutions tailored for your portfolio.
Get a DSCR loan quote in Texas.
Download Depreciation Maximization Checklist (PDF) for Texas investors:
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