The Depreciation of Improvements

Building improvement depreciation helps report accurate financial data.

Building improvements are additions or physical enhancements that are made to nonresidential or residential buildings. Depreciating building improvements is an essential business and fiscal practice, because it allows the taxpayer to lower fiscal liabilities.

Definition

Depreciation improvements to a building means spreading the cost of these improvements over a defined number of years. The Internal Revenue Service (IRS) allows you to depreciate building improvements only if they are considered permanent. For example, if you build a new gym in the basement of a property that you own, the gym would qualify as an improvement.

Nonresidential Building Improvement

The IRS allows you to depreciate, over a 27.5-year period, improvements that you make to a residential building. For example, if you make $27,500 worth of improvements to a residential building you operate for rental income, the annual depreciation expense is $1,000 ($27,500 divided by 27.5)

Residential Building Improvement

The allowed depreciation term is 39 years for improvements to nonresidential buildings, such as office buildings. You will report improvement depreciation expense in the income statement when filing fiscal returns. Improvement depreciation helps lower your taxable income and fiscal liability.

References

• Complete Tax: Depreciation Methods
• Internal Revenue Service: Overview of Depreciation