Depreciation of Commercial Real Estate


14 Feb
14Feb

Owners of Commercial Real Estate can reduce their tax bill by depreciating the value of their property.  For commercial real estate the usual time period is 39 years.  Note this only applies to the improvements (i.e. the building) and not the land.  So, if a $1 million-dollar property has an assessed value of $700,000 for the building and $300,000 for the land, only the $700,000 can be depreciated.  The depreciation can be deducted from the property’s income, for the example above ($700,000/39 = $17,948.72) annually.

There are cases where you can depreciate on a shorter time frame.  Commercial assets which are comprised of 80% or more residential space can be depreciated over 27.5 years.  Additionally, you maybe be able to take advantage of a Cost Segregation Study for improvements to shorten the depreciate time for taxation purposes.  Further, there are cases where the property can be depreciated over even shorter time periods, we suggest you consult a tax expert such as a Qualified Tax Accountant for more information.

So, if you or your family/ownership has held a commercial property for 40 or more years you may want to investigate selling, doing a 1031 exchange to defer capital gains & depreciation recapture and take advantage of the potential tax savings depreciation has to offer.  Commercial real estate depreciation is perhaps one of the most underrated benefits of investing in commercial assets.  You should definitely look into it if you are not currently benefiting from it.

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