Definition: An annual tax deduction allowed for the loss of value of an asset due to wear over a period of years, such as a business vehicle or real estate improvement. 

See Also: Adjusted basis , amortization , capital expenditure, expense .

Tips: The amount of the deduction each year depends on the applied depreciation method that is allowed in the tax code for the asset. Assets can either be expensed or capitalized. If expensed, the expense appears on the Profit & Loss Statement. If capitalized, the amount appears as an asset on the balance sheet and then depreciated, which shows up as “depreciation” on the Profit & Loss Statement.