# Appreciation vs depreciation vs amortization differences

The difference between amortization vs appreciation vs depreciation differences is

## Appreciation

**Appreciation** is the rise in value of something over time.

**Example**

If you buy a house for $100,000. Over time, let’s say one year later, the house goes up in value to $110,000. This means that the value of the house appreciated for $10,000

If you were to sell the house at $110,000 this mean that you have a capital gain of $10,000 which means that you only pay taxes on $10,000.

why? ( 110,000 sales price – 100,000 basic ) = 10,000

Things to know:

The taxes that you pay on long term capital gains (more than a year) depends on what tax bracket you are.

The taxes that you pay on short term capital gains (less than a year) are tax as ordinary income.

**Example**

If you buy a share of stock for $100 dollars. Over time, let’s say one year later, that same share of stock goes up in value to $110 dollars. This mean that the value of the share appreciated for $10.

If you were to sell the share of stock for 110 then you only pay taxes on $10

## Amortization

**Amortization **is when you take a sum of money. Usually a loan and pay it over time which in turn reduced the total amount owe until it gets to zero.

Example

If you were to take a $100,000 loan at 5% interest per year, for 12 months

the total principal paid will be $100,000

total interest paid will $2,728.98, not $5,000 (simple interest)

the reason for this is that every month you make a payment, you paying less compound interest.

and

the monthly payment amount will be $8,560.75

## Depreciation

**Depreciation** is similar to amortization, the difference is that amortization charges off the cost of intangible assets while depreciation charges off the cost of tangible assets or fixed assets.

example

A vehicles loses value as time passes, so it depreciate in value. A car is tangible.

Buildings are tangible assets. So they can depreciate in value as time passes.

That’s it.

Take a calculated risk.

Now, start and adjust as you go.

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