Depreciating investment property can be a significant tax benefit. Depreciating commercial property is different than depreciating residential property, and these differences can be used to take full advantage of the tax benefit.
Straight Line Depreciation
Calculate the total cost basis of the commercial property you are depreciating.
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Divide the total value by 39 to get your annual depreciation on a straight line basis.
Apply the depreciation to your taxes annually for at least 39 years until the property has been fully depreciated.
Cost Segregation Depreciation of Commercial Property
Separate the commercial property asset using an engineering report into four separate categories: personal property, land improvements, the building and land.
Depreciate the amounts allocated to personal property over five to seven years using a double declining method.
Depreciate the amount allocated to land improvements over 15 years using an accelerated method, such as the 150% declining balance method.
Depreciate the components of the building separately to take advantage of different tax benefits. For example, although the roof is part of the building, you may be able to depreciate it more quickly separately.
Allocate the remaining amount to the land category.
Do not under any circumstances attempt to do this without the assistance and direction of qualified tax, accounting and engineering professionals.