How Many Years to Depreciate a Building: 27.5 vs. 39 Years

Under the federal Modified Accelerated Cost Recovery System (MACRS), the number of years to depreciate a building is 27.5 years for residential rental property and 39 years for nonresidential (commercial) real property.¹ A building counts as residential when at least 80 percent of its gross rental income comes from dwelling units; everything else falls on the 39-year schedule. Individual components inside or around the building often run on much shorter timelines, and a few situations force you onto a slower alternative schedule instead.

Residential vs. Commercial: 27.5 or 39 Years

Apartment complexes, duplexes, and single-family rental houses all sit at 27.5 years. Office buildings, retail stores, and warehouses sit at 39 years.¹ For a mixed-use structure containing both dwelling units and commercial space, the 80-percent gross-rental-income test decides which single schedule applies to the whole building.

Both categories use the straight-line method, spreading the depreciable cost evenly across the recovery period.² A residential rental property with a $275,000 depreciable basis produces a $10,000 annual deduction ($275,000 ÷ 27.5). A commercial building with the same basis produces roughly $7,051 per year ($275,000 ÷ 39).

When the Clock Starts

Depreciation begins on the placed-in-service date, meaning the day the building is ready and available for its intended use. For a rental, that is generally when you finish preparing the property and list it, not when a tenant signs a lease. If you buy a house in April, finish significant repairs in July, and start advertising for tenants that same month, the property is placed in service in July even if no one moves in until later.³ Certificates of occupancy, dated listing ads, and contractor completion records help document the date.

Once the property is placed in service, depreciation continues through temporary vacancies. A few weeks between tenants, with repairs and re-listing in between, does not interrupt the deduction.³

The IRS applies a mid-month convention to the first and last years. Whatever day of the month you actually place the building in service, the tax code treats it as the 15th.¹ Placing it in service on March 3 or March 28 produces the same first-year deduction: a half-month for March plus full months for April through December. The same half-month rule applies in the month you sell.

Depreciating the Building, Not the Land

Only the building depreciates. Land does not wear out, so the IRS treats it as a nondepreciable permanent asset.⁴ Before you can start writing anything off, you have to split your purchase price between land and improvements.

Two methods work. Your local property tax assessment usually breaks total assessed value into land and improvements, and you can apply that same ratio to your purchase price; if the assessment shows 25 percent land and 75 percent improvements, that split carries over. A professional appraisal is the alternative, separately valuing the land and the replacement cost of the structure. Either produces the documentation the IRS expects behind your depreciable basis.

Shorter Schedules for Components and Improvements

Not every dollar you spend on a building rides the 27.5- or 39-year schedule. Items outside the structural shell, and certain interior improvements, follow their own shorter recovery periods:

15-year property: land improvements such as paved parking lots, fences, sidewalks, and landscaping.²
7-year property: office furniture and fixtures, including desks, filing cabinets, and safes.²
5-year property: appliances, carpeting, and furniture used in a residential rental activity.²

Interior improvements to a commercial building can qualify for a 15-year recovery period as qualified improvement property (QIP).² To qualify, the work must be interior only, made after the building was first placed in service by any owner, and not an enlargement, elevator, escalator, or change to the internal structural framework. Updated lighting, new flooring, interior walls, and refreshed restrooms in an office or retail building are typical examples. At 15 years instead of 39, QIP roughly triples the annual deduction per dollar spent.

Identifying which parts of a building belong on which schedule is the job of a cost segregation study, an engineering analysis that breaks the total cost into individual asset categories. Studies typically run between $5,000 and $25,000 depending on the property’s size and complexity, and for buildings worth $1 million or more the tax savings usually exceed the cost.

For 2026, a permanent 100-percent bonus depreciation deduction applies to qualifying business property acquired and placed in service after January 19, 2025, letting you deduct the full cost of eligible assets in the first year rather than spreading it across the normal recovery period.⁵ Land improvements, personal property like appliances and furniture, and QIP commonly qualify. Section 179 expensing offers a similar first-year write-off, capped at $2,560,000 for 2026 and phasing out once qualifying property placed in service exceeds $4,090,000; QIP is Section 179 eligible.² Neither provision changes the building shell itself. A residential rental building still runs 27.5 years and a commercial building still runs 39.

When Longer Periods Apply: The Alternative Depreciation System

Certain properties must use the Alternative Depreciation System (ADS), which stretches the schedules out:¹

Residential rental property: 30 years instead of 27.5.⁶
Nonresidential real property: 40 years instead of 39.
Qualified improvement property: 20 years instead of 15.

ADS is required if the property is used predominantly outside the United States, leased to a tax-exempt organization or government entity, financed with tax-exempt bonds, or held by a real property trade or business that has elected out of the Section 163(j) business interest deduction limitation. You can also elect ADS voluntarily, but once made the election generally cannot be revoked.

What Depreciation Costs You When You Sell

Every depreciation deduction lowers your tax basis in the building, which raises your taxable gain at sale. The IRS recovers that benefit through unrecaptured Section 1250 gain, which is taxed at a maximum federal rate of 25 percent rather than the lower long-term capital gains rates that apply to the rest of the profit.⁷

Say you bought a rental for $300,000 (excluding land), claimed $100,000 of depreciation over your holding period, and sold for $350,000. Your adjusted basis is $200,000, so the total gain is $150,000. Of that, $100,000 is taxed at up to 25 percent as recaptured depreciation, and the remaining $50,000 is taxed at your applicable long-term capital gains rate.

Skipping depreciation to avoid recapture does not work. Under the allowed-or-allowable rule, the IRS reduces your basis by the greater of what you actually deducted or what you were entitled to deduct.² Not claiming the deduction costs you the annual tax savings and still leaves you with the larger taxable gain at sale.

1
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
2
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
3
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
4
Office of the Law Revision Counsel. 26 USC 167 – Depreciation
5
Internal Revenue Service. One, Big, Beautiful Bill Provisions
6
Internal Revenue Service. Instructions for Form 4562 (2025)
7
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed