How It Works
The IRS lets you deduct building cost over 39 years (commercial) or 27.5 years (residential rental). This paper loss offsets income, reducing taxes even while the property appreciates. Land is never depreciable.
Tax Tool
CRE Depreciation Calculator
Calculate straight-line depreciation and annual tax savings for your commercial property investment.
Annual Depreciation Deduction
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Depreciable Basis
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Annual Tax Savings
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Total Tax Savings
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Recapture at Sale
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25% federal rate
💡 This uses straight-line only. Cost segregation can accelerate deductions significantly. Consult a CPA for your specific situation.
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Apply with these numbers
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Scenario A vs. B
A is saved. Change any input above and B updates — the difference shows on the right.
| Result | A saved | B now | B − A |
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Understanding CRE Depreciation
The tax shield that makes CRE one of the most tax-efficient investments.
Cost Segregation
A cost segregation study reclassifies components into 5, 7, or 15-year categories. This front-loads deductions and can save tens of thousands in early-year taxes. Especially powerful with bonus depreciation.
Depreciation Recapture
At sale, cumulative depreciation is recaptured at 25% federal rate. $300K depreciation = up to $75K recapture tax. Can be deferred with a 1031 exchange.
Phantom Income Shield
Depreciation creates tax losses even with positive cash flow. $80K cash flow minus $40K depreciation = only $40K taxable. This deferral is one of CRE's most powerful wealth-building tools.
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FAQ
Common depreciation questions.
What is the depreciation period for commercial property?
39 years for nonresidential commercial. 27.5 years for residential rental (apartments). Land is never depreciable.
What is cost segregation?
A study that reclassifies building components into 5, 7, or 15-year categories, accelerating deductions. Especially valuable in early ownership years.
What is depreciation recapture?
At sale, cumulative depreciation is taxed at 25% federal. Can be deferred using a 1031 exchange.
Can depreciation create a tax loss?
Yes. If depreciation exceeds net rental income, the result is a paper loss that may offset other income depending on your real estate professional status.