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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.
