Depreciation in Commercial Real Estate by Christopher Sanz, JD, LLM

Posted on January 07, 2021

One of the benefits of investing in commercial real estate is the ability to depreciate, or reduce, the taxable value of appreciating property over its useful life, which the IRS defines as 39 years for commercial buildings and their improvements. In other words, depreciation deductions allow investors to annually write off a percentage of a property’s decline in value that occurs over time with normal wear and tear. Because deductions reduce taxable income, the more properties an investor owns, the greater the depreciation they may claim to offset income. However, depreciation deductions can also reduce investors’ cost basis in a property. Therefore, special care should be taken to plan ahead for an eventual sale in order to avoid a surprise tax bill. For many investors, a 1031 exchange provides a viable solution.

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