Commercial Real Estate Owners Need to Know the IRS Depreciation Schedule Better

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Did you know that the Internal Revenue Service (IRS) considers commercial real estate an asset and not an expense? That’s exactly why you don’t get to write off the cost of your property in the year you buy it. In order to make good the gradual loss of your property’s value while it deteriorates, you will have to decrease its value by a small amount every year, which is what depreciation, is all about, as per the IRS. Although commercial buildings generally have a lifespan of around 39 years, you have the option of speeding up the process of depreciation in less time in order to claim the compensation.


Depreciation Applies Only to Commercial Buildings


According to the IRS land doesn’t deteriorate over time and hence commercial land cannot be depreciated. However, people buy land and building together which makes it necessary for owners of commercial property to allocate the value of the property proportionately between the land and the building because commercial buildings older than 39 years fall under the depreciation rule. This is where things begin to get complicated and the need for expert advice is felt. You can speak to the experts at Park West Capital to know how to allocate the value of your property in a way that not just maximizes your depreciation but also ensures that it complies with IRS requirements. In case you just buy land on which you later construct a building it will be depreciable over 15 years.


Depreciation on Leasehold Property


The 15 year depreciation rule also applies when you build space to lease out to a tenant since the property will require periodic changes with a change of tenants since the changes don’t last as long as the building. You need to make sure though, that the changes are done only to the portion that has been leased out and no structural changes are made to the building. You can contact Park West Capital for a bridge loan to carry out the changes to your leasehold property at competitive terms. Aside from the option to speed up depreciation in 15 years, the IRS allows you the option of writing off the remaining leasehold changes with a one-time payment if your tenant decides to move out before completing 15 years.


Divide your Cost to Enable Faster Depreciation


Not all parts of your building have a lifespan of 30 years which allows you to divide it into different parts. For instance, there would be fixtures and electrical and electronic equipment installed in the building on which the depreciation can be speeded up. Therefore, it is advisable that you divide the cost of the different segments of your building. This is easier said than done and you will need expert advice to help you know how and where such depreciation is applicable. When you speak to us at Parkwest Capital for a bridge loan to fund the changes in your property you also get valuable insights on how to utilize your credit and asset value in the most optimum way. You can avoid claiming more depreciation going forward when you take more depreciation in the initial stages.