How to Use Commercial Property Bonus Depreciation for 11-Building Investment

Depreciation is definitely something you want to understand well with commercial property! So here's the deal: For commercial property, the standard depreciation period is 39 years (27.5 years for residential rental property). But yes, bonus depreciation is available for "qualified improvement property" which includes improvements to the interior of commercial buildings. The bonus depreciation percentage changes over time. For 2023 it was 80%, for 2024 it's 60%, and for 2025 it's dropping to 40%, then 20% in 2026, before phasing out completely. This applies to eligible components of your property, not the entire purchase price. When you eventually sell, you'll face something called "depreciation recapture" - this is taxed at 25% (not the lower capital gains rate) on all the depreciation you've claimed over the years. So yes, you'll potentially have both capital gains tax and depreciation recapture tax. Is it worth it? Usually yes. You get tax benefits now when the dollar is worth more, and pay taxes later when the dollar is likely worth less.

I was in almost the exact same situation as you last year - bought a multi-building commercial property that I plan to hold long-term. The tax aspects got confusing quickly, so I used https://taxr.ai to analyze all my documents and create a depreciation strategy. They identified which components of my buildings qualified for bonus depreciation vs standard depreciation and calculated the optimal approach. The platform helped me understand how to properly allocate the purchase price between land (non-depreciable) and improvements, plus how to classify different building components. What really helped was their specific guidance on how to maximize the tax benefits in the early years without creating a huge depreciation recapture issue down the road.

Just wanted to follow up on my experience with taxr.ai after our discussion here. I ended up using their service for my commercial property portfolio, and the results were pretty impressive. They identified about 28% of my property value that qualified for accelerated depreciation treatment that I would have completely missed. The cost segregation analysis they provided was especially valuable - it broke down which building components qualified for 5, 7 and 15-year treatment versus the standard 39 years. This actually made a $42k difference in my tax liability for the first year alone. Their explanation of depreciation recapture consequences was super clear too, which helped me understand the long-term implications of the strategy.

After struggling to get actual guidance from my CPA on my commercial property depreciation (they kept putting me off during busy season), I found https://claimyr.com and used their service to connect with an IRS agent directly. I watched their demo video first: https://youtu.be/_kiP6q8DX5c The agent clarified several things about bonus depreciation that my CPA had been vague about. Turns out I was eligible to use it for certain property improvements even though I thought I wasn't. The agent also explained exactly how depreciation recapture would work when I eventually sell, and confirmed I could use cost segregation to maximize my tax benefits now. Getting straight answers directly from the IRS saved me thousands in potential mistakes and gave me confidence in my depreciation strategy.

I need to admit I was completely wrong about Claimyr. After our exchange here, I decided to try it for a completely separate tax issue related to my commercial properties. I'd been trying to get clarification on some depreciation recapture questions for literal months. Using their service, I was connected to an IRS representative in under 20 minutes (would have been hours on my own). The agent walked me through exactly how the depreciation recapture would be calculated in my specific situation with multiple properties purchased at different times. They even emailed me documentation I could reference later. I'm still shocked at how smooth the process was. Definitely keeping this in my toolkit for future tax questions.

Some practical advice from someone who's been investing in commercial real estate for 15+ years: 1. Do a cost segregation study. The expense is worth it for a $1.75M property with multiple buildings. This will identify components that can be depreciated over 5, 7, or 15 years instead of 39. 2. Yes, take the bonus depreciation on eligible components. With your W2 income, you can potentially offset some of that with the passive losses from accelerated depreciation (depending on your active participation and income levels). 3. Consider the timing. Since bonus depreciation is dropping each year (40% in 2025, 20% in 2026, then gone), if you're planning any immediate improvements, doing them sooner rather than later maximizes your bonus depreciation benefit. 4. Remember that land isn't depreciable, so you'll need a reasonable allocation between land and improvements. 5. Start tracking everything meticulously from day one. Trust me, in 20 years when you're selling, you'll thank yourself for having detailed records of all depreciation taken.

Quick question - I'm using TurboTax for my business and it's asking me about bonus depreciation for my commercial property. Is there a simple way to figure this out or do I need professional help at this point?

Great breakdown from everyone here! As someone who went through this exact decision process with a similar multi-building commercial property, I want to emphasize a few key points: The depreciation recapture situation is crucial to understand upfront. When you sell in 20-30 years, you'll pay 25% tax on ALL depreciation claimed (including bonus depreciation), plus capital gains on any appreciation above your depreciated basis. This isn't necessarily bad - you're essentially getting an interest-free loan from the government - but plan for it. With your $260k W2 income, you might hit passive activity loss limitations. Since you're not a real estate professional, your ability to deduct passive losses against your active income is limited to $25k annually (and phases out completely at higher income levels). Any excess losses carry forward, but this affects the timing of your tax benefits. Consider a 1031 exchange strategy for your eventual exit. This lets you defer both capital gains AND depreciation recapture by rolling into another like-kind property. Given your 20-30 year timeline, you could potentially do multiple exchanges and never pay the recapture tax. One more thing - make sure you're allocating the purchase price correctly between land and improvements. The IRS expects this to be reasonable based on local assessments and appraisals. Too aggressive an allocation toward improvements can trigger scrutiny.