Building Improvements Depreciation: 15, 27.5, or 39 Years?

Building improvements are depreciated over 15, 27.5, or 39 years, and the correct building improvements depreciation life depends on the type of property and the nature of the work. Residential rental buildings use 27.5 years, commercial buildings use 39 years, and qualifying interior work on a commercial building uses 15 years. Two first-year options, bonus depreciation and Section 179 expensing, can shrink that recovery to a single year for eligible items.

Is It an Improvement or a Repair

Before picking a recovery period, confirm the expense is actually a capital improvement. A repair is deductible in the year you pay it. An improvement has to be capitalized and depreciated. The IRS treats an expenditure as a capital improvement if it makes the property better than it was (a betterment), brings it back from significant disrepair (a restoration), or converts it to a new use (an adaptation).¹

For small items, the de minimis safe harbor lets you deduct rather than capitalize amounts up to $5,000 per invoice if your business has audited financial statements, or $2,500 per invoice if it does not. The election has to be made each year on your return.¹

27.5 Years for Residential Rental Property

Improvements to a residential rental building are depreciated straight-line over 27.5 years. To qualify for this class, at least 80 percent of the building’s gross rental income has to come from dwelling units used as living space.² Hotels and motels where more than half the units serve short-term guests do not count as residential rental property.

Depreciation starts the month the improvement is ready and available for use. Real property uses the mid-month convention, so the first-year deduction is calculated as if the work were placed in service at the middle of that month, regardless of the actual day.² A January completion gives you nearly a full year of first-year depreciation; a December completion gives you half a month.³

39 Years for Commercial Buildings

Improvements to non-residential real property, offices, retail spaces, warehouses, and similar structures, follow a 39-year straight-line recovery period. The mid-month convention applies here too, so timing within the month affects your first-year deduction.²

The 39-year class covers permanent structural work: exterior walls, a new wing, elevators, and other work affecting the building’s structure. Interior renovations often move to the 15-year class described next, so classify each project before defaulting to 39 years.

15 Years for Qualified Improvement Property

Qualified Improvement Property (QIP) is the main exception to 39-year commercial treatment. QIP is any improvement a taxpayer makes to the interior of an existing non-residential building, and it uses a 15-year recovery period under the general depreciation system.⁴ Typical examples are new flooring, lighting, interior walls or partitions, and upgraded ceilings. The CARES Act retroactively corrected a drafting error in the 2017 tax law, sometimes called the “retail glitch,” that had accidentally assigned QIP to the 39-year class and blocked it from bonus depreciation.⁵

Three types of work are excluded from QIP no matter where they sit inside the building:⁴

Building enlargements, meaning added square footage or a new floor.
Elevators and escalators.
Internal structural framework, including load-bearing walls, columns, and beams.

These excluded items go back to the 39-year timeline.

15 Years for Land Improvements

Improvements to the land around a building are depreciated over 15 years. This includes paved parking lots, sidewalks, roads, bridges, fences, and certain landscaping.⁶ These items wear out over a limited useful life, which is why they are treated differently from the land itself, which is never depreciable.

Splitting land improvement costs from raw land cost matters. Buying the land, including initial clearing and grading, is not depreciable. But preparation costs tied to a specific depreciable improvement, such as landscaping installed alongside a new parking lot, can be depreciated with that improvement.⁶ Documenting the split during construction is what makes this defensible later.

Bonus Depreciation in 2026

Bonus depreciation lets you deduct a large percentage of an improvement’s cost in the first year instead of spreading it. The One Big Beautiful Bill Act, signed in 2025, restored the 100 percent bonus depreciation rate for qualifying property acquired after January 19, 2025, and placed in service in 2026 or later.⁷

QIP qualifies because its 15-year recovery period sits within the 20-year threshold for bonus-eligible “qualified property.”² For a business that acquires and installs QIP after January 19, 2025, the entire cost can generally be deducted in year one.

A transition rule covers property acquired before January 20, 2025, but not yet placed in service. If you acquired the property before that date and place it in service during 2026, only 20 percent of the cost qualifies for bonus, with the rest depreciated on the standard schedule. Property acquired before January 20, 2025, and placed in service after 2026 gets no bonus at all. Buildings themselves, meaning the 27.5-year and 39-year classes, do not qualify for bonus depreciation. Only shorter-lived assets like QIP and land improvements are eligible.

Section 179 for Specific Building Systems

Section 179 is another way to expense improvements up front. For tax year 2025, the maximum Section 179 deduction is $1,250,000, and it begins phasing out once total qualifying property placed in service exceeds $3,130,000.⁶ The 2026 numbers will be slightly higher after inflation adjustment.

For building work, Section 179 reaches a specific list of improvements to non-residential real property, made after the building was first placed in service:⁸

Roofs.
HVAC systems.
Fire protection and alarm systems.
Security systems.

Unlike bonus depreciation, Section 179 is capped at your business’s taxable income for the year; it cannot create a net loss. Any unused amount carries forward. Section 179 does not apply to residential rental improvements.

When You Are Forced Into the Alternative Depreciation System

Some situations require the Alternative Depreciation System (ADS), which lengthens the recovery periods to 30 years for residential rental property and 40 years for non-residential real property.² QIP under ADS uses 20 years.⁵

ADS is mandatory for property used predominantly outside the United States, tax-exempt bond-financed property, and tax-exempt use property. These triggers are set by statute and cannot be avoided by election.²

ADS also applies when a real property trade or business elects out of the business interest deduction limitation under IRC Section 163(j). That election allows a bigger interest deduction, but in exchange all non-residential real property, residential rental property, and QIP shift to the longer ADS timelines and lose bonus depreciation eligibility.⁹ Whether the trade is worthwhile depends on the numbers.

Leasehold Improvements: Who Depreciates What

When a tenant builds out leased commercial space, the depreciation follows the money. If the tenant pays for the work, the tenant depreciates it, even when the lease gives the landlord immediate legal title. If the landlord pays directly or through a construction allowance, the landlord takes the depreciation. When a landlord reduces rent to offset a tenant’s construction costs, the landlord reports the improvement and deducts depreciation while the tenant deducts the unreimbursed construction costs as rent.

A tenant paying for qualifying interior work on a non-residential building can treat it as QIP and use the 15-year recovery period, potentially with bonus depreciation on top. Landlord-funded work is classified the same way by the nature of the work.

Partial Disposition When You Replace a Component

Replacing a roof, HVAC unit, or elevator means you have disposed of the old component and installed a new one. Without an election, you would keep depreciating the old component’s remaining basis alongside the new one and overstate the building’s depreciable basis.

The partial disposition election fixes that. It lets you recognize a loss equal to the remaining undepreciated cost of the removed component in the year it comes out, and start depreciating the replacement on its own schedule. The loss is reported on Form 4797.¹⁰ The election is available in any tax year and works for both residential and commercial buildings. Using it depends on knowing the original cost allocated to the component being replaced.

Where This Goes on Form 4562

Building improvement depreciation is reported on IRS Form 4562, Depreciation and Amortization. For improvements placed in service during the current year under the general depreciation system, residential rental property (27.5 years) and non-residential real property (39 years) go in Part III, Section A, on the mid-month convention lines. QIP and land improvements with shorter recovery periods go on the earlier lines of the same section. ADS assets go in Part III, Section C.

Assets already in service from prior years are picked up in Part III, Section B. Form 4562 only needs to be filed in years when you place new depreciable property in service, claim a Section 179 deduction, or first claim depreciation on listed property, but ongoing depreciation still flows onto your business income schedule (Schedule E for rental property, for example) every year.

1
Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
2
Office of the Law Revision Counsel. 26 USC 168 Accelerated Cost Recovery System
3
Internal Revenue Service. Publication 527, Residential Rental Property
4
Legal Information Institute. 26 USC 168(e)(6) Qualified Improvement Property
5
Internal Revenue Service. Rev. Proc. 2020-25 – Additional First Year Depreciation Deduction
6
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
7
Internal Revenue Service. One, Big, Beautiful Bill Provisions
8
Internal Revenue Service. Depreciation Expense Helps Business Owners Keep More Money
9
Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense
10
Internal Revenue Service. Identifying a Taxpayer Electing a Partial Disposition of a Building