What is the impact of depreciation expense in property management?

Depreciation expense plays a significant role in property management, particularly in terms of financial reporting and tax implications. When recorded, depreciation represents the allocation of the cost of a property over its estimated useful life. This allocation reduces the taxable income of the property owner, effectively serving as a tax deduction.

By recording depreciation, property managers can reduce the amount of income that is subject to income tax, leading to potential tax savings. This is crucial for property owners since it allows them to maintain a higher cash flow despite the ongoing expenses and costs associated with maintaining the property.

In contrast, the other options do not accurately describe the impact of depreciation. For example, while depreciation affects the taxable income, it does not directly decrease rental income or increase market value. Furthermore, it certainly has financial implications, as it influences tax liabilities and overall financial health for property owners. Hence, understanding the tax benefits afforded by depreciation is essential for effective property management and financial planning.