Which property type has a shorter depreciation period, commercial or residential?

Residential properties have a shorter depreciation period compared to commercial properties primarily due to the different treatment of depreciation by the Internal Revenue Service (IRS). In the United States, residential rental properties typically depreciate over 27.5 years, while commercial properties have a longer depreciation period of 39 years.

This difference reflects the nature of the investments and the expected lifespan of the properties. Residential properties are often considered to be more stable investments, reflecting shorter-term demand and turnover, while commercial properties might involve longer lease terms and a different set of market dynamics. Consequently, investors in residential properties can benefit from quicker tax deductions through depreciation, as they can recover their initial investments more rapidly compared to commercial investments.

Understanding these distinctions is essential for strategic tax planning and investment decisions within real estate markets.