Is Depreciation Worth Anything?

[Shafi Noss]

I see a lot of investors get excited about depreciation because property values usually go up, but investors can report they went down on their taxes.

I am skeptical this is actually an advantage.

For example, commercial real estate depreciates over 39 years. It doesn't seem crazy to me that a building would wear down to salvage value over four decades if not maintained. 

Property values appreciate because of inflation, increased demand, and value-add and these increase the price more than the property wear-down decreases the price. 

But because this happens at the same time, it is hard to see the property would have appreciated even more if not for the wear-down, and therefore the depreciation is just neutral. 

Depreciation can't be applied to W2 income so does not allow a tax arbitrage, appreciation from inflation is neutral because everything else is more expensive too, and only the value-add items are allowed to be depreciated on a fresh schedule, plus there is depreciation recapture at the end. 

So I don't see any tax hacks or loopholes in this. Just seems like a fair way to account for building wear-down and people get confused easily because depreciation happens by itself and early, whereas the property value is mixed together at the same time. 

What do you guys think?