Tax Depreciation for Buildings

Tax laws allow companies to depreciate buildings like this one.

Internal Revenue Service (IRS) rules allow taxpayers to depreciate residential and nonresidential buildings at the end of each year. Accurate depreciation amounts help a company to report financial data that are correct and complete.

Definition

Depreciation is a fiscal and financial procedure that allows you to recover the cost of a building you own over a specified number of years. A building is considered a long-term asset, meaning you most likely will use it in operating activities for more than a year.

Residential Buildings

A residential building is property in which you live or that you operate for rental income. IRS guidelines allow you to depreciate this type of building over 27.5 years. For instance, if you own a residential building valued at $55 million, the annual depreciation expense is $2 million ($55 million divided by 27.5).

Nonresidential Buildings

You can depreciate nonresidential buildings, such as office buildings, over 39 years. If you own a business, the depreciation expense amount is reported in the income statement, also known as a statement of profit and loss.

References

• CCH Business Owner's Toolkit: Depreciation Methods
• Internal Revenue Service: Overview of Depreciation