Property Type (Depreciation)

Residential or commercial classification that determines the IRS depreciation schedule applied to the property.

Example Result

Sample Data

Residential (27.5 yr)

Based on a sample $385,000 property with $2,850/month rent, 20% down, 7% interest rate.

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With the Rental Property Calculator, you can run this calculation against your own rental properties using your real numbers.

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Property Type (Depreciation) Formula

Residential Your Setting

27.5 yr

≈ 3.636% per year

Examples

Single-family rentals
Duplexes & small multifamily
Condos & townhomes (rental)

Depreciable Basis ÷ 27.5 = Annual Deduction

Commercial

39 yr

≈ 2.564% per year

Examples

Office & retail buildings
Warehouses & industrial
Mixed-use (50%+ commercial)

Depreciable Basis ÷ 39 = Annual Deduction

44% faster deductions: Residential investors recover their building cost 44% faster than commercial investors on the same depreciable basis — a meaningful advantage compounded over decades of ownership.

Why It Matters

Choosing the correct property type determines how quickly you recover the cost of the building through annual depreciation deductions. Residential investors with a 27.5-year schedule deduct 44% more per year than commercial investors with a 39-year schedule on the same depreciable basis. Using the wrong classification understates or overstates your real tax benefit — and the IRS will correct it. Always verify your property classification with your CPA before filing, especially for mixed-use buildings or properties that change use.

Detailed Explanation

Property Type for depreciation purposes determines which IRS depreciation schedule applies to your rental property. Residential rental properties (single-family homes, duplexes, small multifamily) use a 27.5-year straight-line depreciation schedule set by the IRS. Commercial real estate — office buildings, retail space, warehouses, and mixed-use buildings where more than 50% of rental income comes from commercial tenants — uses a 39-year schedule.

This classification is determined by how the property is used, not by your intent as an investor. A single-family home you rent out is always residential, even if it is purely for investment. A strip mall is always commercial. A mixed-use building is classified by which income stream is dominant.

The key financial impact is the speed of the depreciation deduction. Under the 27.5-year schedule, you deduct the entire depreciable building basis (purchase price minus land value) over 27.5 years — roughly 3.636% per year. Under the 39-year schedule, the same basis spreads over 39 years — roughly 2.564% per year. Residential investors get their deductions 44% faster than commercial investors on the same dollar amount.

Only the building and improvements are depreciable — land is never depreciated. Your depreciable basis equals the total cost (purchase price + closing costs + rent-ready costs − seller concessions) multiplied by the building percentage (100% minus your land value percent).