May, 5 2025
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If you own or are looking to buy a commercial building, you’ve probably heard people talk about depreciation—often in the same breath as taxes or property value. But let’s cut through the buzzwords: depreciation is just a way for you to spread out the cost of your property over time, reducing your taxable income every year.
Here’s the part many folks miss: the IRS has a very specific rule for commercial buildings. You don’t get to pick your own number of years. According to the tax law in 2025, you must depreciate commercial buildings over 39 years. This isn’t just some suggestion—it’s set in stone unless there’s a major law change.
If you buy a $1.17 million office building, you can typically write off about $30,000 per year as a deduction. It’s pretty dry math, but the savings aren’t boring at all. These deductions can seriously cut your annual tax bill and make owning commercial property a lot more attractive.
But don’t make the rookie mistake of trying to depreciate land—it doesn't qualify. Only the value of the building itself gets written off, not the dirt it sits on. Knowing this not only helps during tax season but also shapes how you negotiate and structure your deals. Stick around, and you’ll see how to put depreciation to work for you, whether you’re holding or planning to sell soon.
Depreciation in the world of commercial property is basically a tax tool. It lets property owners recover part of their investment by spreading out the building’s cost over a bunch of years, thanks to federal tax law. Think of it as the government’s way of saying, “Your building gets old and wears down, so you can deduct a little off your taxes each year.”
This only works for the actual building and its structures—never for the land under it. Land just sits there, so the IRS says it doesn’t wear out. Offices, warehouses, and retail spots? They all get older, repairs come up, and things need replacing, so those are fair game for depreciation.
Here’s the nitty-gritty: You start depreciating the property the moment it’s ready for business—whether that’s opening an office, renting out suites, or running a bakery. The IRS spells it out in black and white. A real estate tax specialist at the National Association of Realtors puts it simply:
"Depreciation helps property owners lower their yearly tax bill and boost overall return on investment, as long as they follow IRS rules on what qualifies."
Commercial property depreciation usually covers the building, HVAC systems, roof, and even things like parking lots and elevators. If you sink $1 million into a new building, instead of writing that off all at once, you’ll deduct a little each year—making it manageable for your tax hit.
Let’s take a quick look at what usually qualifies versus what does not:
This system isn’t just a technicality. For many investors, smart use of building depreciation is the difference between breaking even and pocketing thousands extra every year. That’s why understanding the rules now pays off when it’s time to sell, refinance, or manage your taxes down the line.
So, exactly how long are you allowed to depreciate a commercial property? The magic number is 39 years. That means if your building cost $1,170,000 (excluding the value of the land), you can deduct about $30,000 each year for nearly four decades. The IRS set this building depreciation schedule back in the late 1990s, and it’s stayed the same ever since. No commercial building—whether it’s an office, retail, or warehouse—gets a faster deal. If someone tells you otherwise, they’re probably confusing it with residential rental property, which uses 27.5 years instead.
This 39-year schedule is known as “straight-line depreciation.” Basically, you write off the same amount every single year. No guessing games, no complicated math. Here’s what that looks like for a few common property prices:
| Building Value | Annual Depreciation |
|---|---|
| $780,000 | $20,000 |
| $1,170,000 | $30,000 |
| $1,950,000 | $50,000 |
Remember, this is for the building only—not the land. Before you start, you need a clear breakdown of what part of the sale price is for the land and what’s for the structure.
One last practical tip: Always keep records of your depreciable basis and the start date. The IRS checks these details if you ever get audited. Bottom line: You get 39 years, every year, for the life of that commercial property.
Depreciating your commercial property isn’t just some distant accounting rule—it actually puts real money back in your pocket, especially at tax time. By spreading out the cost of your building over the IRS-mandated 39 years, you’re lowering your reported income each year, which means paying less federal tax.
Think about it like this: if your office building (excluding land) is valued at $1,170,000, you can deduct about $30,000 per year straight off your taxable income. That deduction could knock several thousand dollars off your tax bill, depending on your income bracket. Owners in higher tax brackets save the most here.
If you sell, things get interesting. Those yearly deductions feel great, but they come with a catch. When you sell the building, the IRS may “recapture” some of the tax savings through a thing called depreciation recapture. So, the tax break isn’t endless, but it can help your cash flow while you own the property. A lot of investors use these annual savings to cover building repairs, upgrades, or help with loan payments. It’s basically a way to squeeze more value out of the deal while you have it.
"Depreciation is often the single biggest tax benefit for commercial real estate owners," notes CPA Tom Wheelwright, author of 'Tax-Free Wealth.' "But you have to play by the rules, and recapture can surprise sellers if they’re not prepared."
Here's a quick snapshot of what you can expect if you use depreciation over time:
| Building Value | Yearly Deduction | Total After 10 Years |
|---|---|---|
| $1,170,000 | $30,000 | $300,000 |
To get the most from building depreciation and avoid pain later, always:
Mastering these rules will make you a smarter property owner and could save you serious cash—both now and when you sell. Don’t leave free money on the table by ignoring depreciation rules.
Getting depreciation right can mean real savings or surprises when you’re dealing with commercial property. Whether you’re buying or selling, there are some key tricks that can help you avoid headaches and make the most of your deal.
First off, buyers: Get a cost segregation study if the numbers make sense. This lets you break down your purchase into pieces—like plumbing, fixtures, and even carpets—so you can write some of them off way faster than the building’s 39 years. For big offices or retail spots, this can mean big upfront tax savings. Just double-check that your accountant has experience in this area, since doing it wrong can put you on the IRS’s radar.
Sellers, one mistake you don’t want to make: forgetting about improvements. If you’ve upgraded HVAC, lighting, or even installed security systems, these can be depreciated over shorter schedules—and save you more on your taxes. Make sure every improvement is included in your records before you hand things off to the buyer.
Here’s a quick table to show just how much difference smart planning can make with building depreciation:
| Purchase Price | Standard Annual Deduction (39 yrs) | With Cost Segregation (First 5 yrs) |
|---|---|---|
| $1,000,000 | $25,641 | Up to $60,000+ |
| $2,500,000 | $64,103 | Up to $150,000+ |
The bottom line: bring up building depreciation early in your buying or selling talks. A savvy move now could put more cash in your pocket down the road. Always loop in a real estate tax pro—especially when there’s big money on the table.
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