Article Date:
January 2022

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Depreciating Residential Rental and Commercial Real Property: Avoid Surprises

If you own a motel with a depreciable basis of $1 million, you get to deduct $25,640 each year for depreciation (except the first and last years).


But if you own an apartment building that also has a $1 million basis, your depreciation deduction is $36,360 a year (except the first and last years).


Why the $10,720 larger deduction with the apartment building?


Answer: recovery periods.


Recovery Periods for Real Property


The tax code assigns a certain amount of time—called the recovery period—over which you depreciate all business assets that last more than one year.


The longer the recovery period, the less you deduct each year. As you might expect, real property, such as a building, has a longer recovery period than personal property, such as a car.


But this is tax law, so the recovery period is not the same for all types of real property.



The recovery period for residential rental real property is 27.5 years.1


The recovery period for non-residential real property— that is, commercial rental and business property—is 39 years.2 The 39-year period applies to commercial rental property, ... Log in to view full article.

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