Owners of industrial and commercial real estate can reduce their tax bill by depreciating the value of their property over time. For industrial real estate, the standard depreciation period is 39 years.
Depreciation Applies Only to the Building, Not the Land
Only the improvement value — the building itself — can be depreciated. Land value is excluded. For example, if a $1,000,000 property has an assessed value of $700,000 for the building and $300,000 for the land, only the $700,000 building value is depreciable. Divided over 39 years, that comes to roughly $17,949 in annual depreciation ($700,000 ÷ 39).
Shorter Depreciation Periods in Some Cases
Commercial assets made up of 80% or more residential space can be depreciated over 27.5 years instead of 39. A Cost Segregation Study may also allow certain improvements to be depreciated over a shorter period. Because these calculations vary by property and ownership structure, a Qualified Tax Accountant or other tax professional should be consulted for guidance specific to your situation.
Why This Matters for Long-Term Owners
If you or your family have held an industrial property for 40 years or longer, the building's depreciation may already be fully used up, meaning you're no longer benefiting from this deduction on that asset. This is often a good moment to evaluate a sale or a 1031 exchange, which can allow you to defer capital gains and depreciation recapture while stepping into a new depreciable asset.
FAQ
Can I depreciate land as part of my industrial property?
No. Only the building and other qualifying improvements can be depreciated — land value is never depreciable.
What happens once a property is fully depreciated?
Once the depreciation period ends, the property no longer generates this deduction. Many owners at this point consider selling or exchanging into a new depreciable property.
Should I talk to a tax professional before making decisions based on depreciation?
Yes. Depreciation schedules, cost segregation studies, and recapture rules are technical and property-specific — a Qualified Tax Accountant can advise on what applies to your situation.
We specialize in industrial real estate from the greater Los Angeles to the Inland Empire markets, including: Long Beach, Carson, Torrance, Gardena, Compton, Rancho Dominguez, Wilmington, Paramount, Santa Fe Springs, Huntington Beach, Garden Grove, Irwindale, Signal Hill, Pomona, City of Industry, and Ontario, serving surrounding submarkets including LA South Bay, LA Central, Mid-Counties, San Gabriel Valley, Orange County and the Inland Empire.
Ron Mgrublian
Principal, Lee & Associates Los Angeles – Long Beach
562-354-2537
rmgrublian@leelalb.com
CalDRE# 01902882
