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How to compute depreciation for commercial real estate

Date: 03/04/2008 | Category: Real Estate | Author: John Vanhara

An excellent  on source how to compute depreciation for commercial real estate.

Depreciation is the loss in value of an asset or building over time.  The cost of reproducing an income-generating property can be recovered over the life of the asset.  Depreciation is treated as an expense and is a deductible item on an income statement.  Depreciation can only be applied to the building and not the land itself. Residential income properties must be depreciated over a period of 27 and a half years.  Commercial income properties must be depreciated over a period of 39 years.  The calculation of straight line depreciation stipulates that an asset must be depreciated by equal amounts each year over its lifetime

Example:  You purchase a warehouse for $900,000.  The land where the warehouse is located is valued at $120,000.  The building is therefore valued at $780,000.  The law allows you to depreciate commercial properties by equal amounts annually over 39 years.  Your depreciation deduction for the first year is based on the mid-month rule. For example, if you put the warehouse into service on June 1, you are able to deduct six and a half months of depreciation for the first year of operation.

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