Im curious why depreciation has tax implications, what was the intention

Equalization of tax burden and transparency in reporting. To put it very simply: when you buy a thing you spend money and gain value. No change in books. Then after some time you sell said thing for generally less and experience sharp loss. Think of P&L report of a public company. Such maneuver will artificially increase profits during ownership and deflate, potentially up to incurring book loss, them in period of sale. Depreciation/amortization simply spreads this loss of value over the period of ownership. Tax implications are mostly incidental and come from reporting.

It's because the 'value' of something (eg a machine) is 'used up' over time until eg the machine eventually wears out and needs replacing.

Depreciation reflects that the asset's value is used up over time by allowing the owner to deduct part of its value each period to reflect the reduction in asset value in their financial statements.

Pretty sure you can't write off missing rent as a business loss.

Depreciation definitely needs to be fixed. You shouldn't be able to claim 3% of a structures value as business loss every year, without some sort of evidence that you will actually tear down the structure in 33 years. And perhaps after it has been counted as depreciated once, future owners shouldn't be allowed to deduct the depreciation either.

I'm intrigued by this. In the UK depreciation is reversed out in tax calculations and replaced by capital allowances. I don't think there are capital allowances for residential buildings.

Well most structures will need repairs and updates over 33 years. Materials degrade for instance one the most common roofing materials asphalt shingles depending on the style has a life time of about 20 to 30 years. You also have things like heating and cooling system and such (they don't last forever) Plus just generally wear and tear and things like carpet that eventually just become and nasty and needs replaced.

Let alone things just getting dated.

If you look at typical house most of the labor and expense for materials is in the finishing not the rough structure like the framing. Look at the price of 8 ft 1x4 trim piece compared to just 8' 2x4 despite the 2x4 having twice the amount of wood. Then look at what generally needs to be replaced its not the framing unless the building was neglected or poorly built.

Depreciation isn’t free money, and the IRS isn’t giving you anything over time.

It might appear they are, but if you properly account for everything it’s not tremendously advantageous.

And it reduces your cost basis also, which means you pay more tax when selling unless you have other ways of avoiding that.