In real estate terms, what does "depreciation" refer to?

In real estate, "depreciation" specifically refers to the decrease in property value over time due to various factors, such as wear and tear, market conditions, or changes in the neighborhood. This concept is important for property owners, investors, and real estate professionals because it can significantly impact the overall financial performance of an investment property.

Depreciation is particularly relevant for tax purposes, as it allows property owners to deduct the decrease in value as an expense, reducing their taxable income. This tax benefit encourages investment in real estate, as it acknowledges the inevitable decline in value associated with continuous use and the aging of a property.

The other options provided do not accurately capture the meaning of depreciation in real estate. The legal transfer of property rights is a concept associated with title transfer; the cost of repairs pertains to maintaining a property rather than its depreciation; and an increase in rental income over time refers to potential cash flow improvements, which are separate from the physical and market-driven decline in property value.