Commercial Depreciation Calculator Formula

Understand the math behind the commercial depreciation calculator. Each variable explained with a worked example.

Use the Commercial Depreciation Calculator

Formulas Used

Total Annual Depreciation

annual_depr = total_annual_depr

Annual Building Depreciation (39yr)

building_depr = annual_building_depr

Annual TI Depreciation (15yr)

ti_depr = annual_ti_depr

Annual Tax Savings

annual_tax_benefit = total_annual_depr * marginal_tax_rate / 100

Building Depreciable Basis

depr_basis = depreciable_basis

Monthly Depreciation

monthly_depr = total_annual_depr / 12

Variables

VariableDescriptionDefault
purchase_priceProperty Purchase Price(USD)1200000
land_valueLand Value(USD)300000
tenant_improvementsTenant Improvements(USD)50000
marginal_tax_rateMarginal Tax Rate(%)35
depreciable_basisDerived value= purchase_price - land_valuecalculated
annual_building_deprDerived value= depreciable_basis / 39calculated
annual_ti_deprDerived value= tenant_improvements / 15calculated
total_annual_deprDerived value= annual_building_depr + annual_ti_deprcalculated

How It Works

Commercial Property Depreciation

Commercial real estate (office, retail, industrial) uses a 39-year straight-line depreciation schedule for the building structure.

Building Depreciation

Annual Depreciation = (Purchase Price - Land Value) / 39

Tenant Improvements

Qualified leasehold improvements may be depreciated over 15 years using straight-line, which is faster than the 39-year building schedule.

Important Distinctions

  • 39-year: Non-residential buildings placed in service after 1993
  • 27.5-year: Residential rental property (80%+ of rental income from dwelling units)
  • 15-year: Land improvements, qualified leasehold improvements
  • Land is never depreciable

    • Mid-Month Convention

    The first and last years of depreciation use a mid-month convention, meaning you get a partial deduction based on the month placed in service.

    Worked Example

    A $1,200,000 commercial building with $300,000 land value and $50,000 in tenant improvements. 35% tax rate.

    purchase_price = 1200000land_value = 300000tenant_improvements = 50000marginal_tax_rate = 35
    1. 01Depreciable basis: $1,200,000 - $300,000 = $900,000
    2. 02Annual building depreciation: $900,000 / 39 = $23,077
    3. 03Annual TI depreciation: $50,000 / 15 = $3,333
    4. 04Total annual depreciation: $23,077 + $3,333 = $26,410
    5. 05Annual tax savings: $26,410 x 35% = $9,244
    6. 06Monthly depreciation: $26,410 / 12 = $2,200.83

    Ready to run the numbers?

    Open Commercial Depreciation Calculator