What is the primary difference between depreciation and amortization in property management?

The primary difference between depreciation and amortization is that depreciation reflects the loss of value of tangible assets over time, while amortization is the process of spreading the cost of intangible assets over their useful life.

In property management, depreciation is commonly applied to physical assets such as buildings and equipment, accounting for their gradual wear and tear and decreasing value as they age. This is crucial for financial reporting and tax purposes, as it allows property managers to recognize the expense associated with the asset over its useful life, thus providing an accurate depiction of the property's financial performance.

On the other hand, amortization pertains to intangible assets like patents, trademarks, and goodwill. It systematically allocates the initial cost of the intangible asset across its useful life, allowing businesses to match the expense of the asset with the revenues it generates over time.

The distinction is important for property management professionals as it guides how they account for different types of assets on their financial statements and manage their budgets effectively.