39-Year Nonresidential Real Property
Commercial buildings — offices, stores, warehouses, hotels — are generally depreciated over 39 years, straight-line, using the mid-month convention. Structural components stay with that building class unless the regulations and facts place them elsewhere. The building itself is not bonus-eligible.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Nonresidential real property is §1250 property that is not residential rental property and has no class life under 27.5 years.
- The GDS recovery period is 39 years; under ADS it is 40 years.
- Real property is excluded from the mid-quarter convention and is not bonus-eligible as a building.
- Qualified improvement property and qualifying retail motor fuels outlets are statutory exceptions with 15-year lives.
- Cost segregation identifies shorter-lived contents and site work; it does not shorten the structure itself.
Section 168(e)(2)(B) defines nonresidential real property as §1250 property that is neither residential rental property nor property with a class life of less than 27.5 years. Section 168(c) assigns it a 39-year recovery period, and §168(b)(3) requires the straight-line method. The mid-month convention applies, so a building placed in service in any month is treated as placed in service in the middle of that month.
Most commercial property falls here: offices, retail stores, restaurants, warehouses, manufacturing buildings, medical buildings, and hotels. A building's structural components — walls, roofs, central HVAC, general plumbing and wiring, elevators, sprinklers — are part of the same 39-year asset.
Hotels are in this class because units used on a transient basis are not dwelling units. A hotel that looks residential still fails the residential rental definition when more than half the units are used that way.
The 39-year building is not qualified property for bonus depreciation. Its recovery period exceeds 20 years. Shorter-lived personal property, land improvements, and qualified improvement property identified in a study can be bonus-eligible if the other tests are met.
Do not treat every commercial interior as 39-year property, and do not treat every commercial interior as personal property. Educational information, not tax advice.
Cost segregation is common on 39-year buildings because the statutory life is long and because commercial interiors often contain equipment connections, fixtures, and site work. The study still has to leave the structure in this class. Calling a wall “decorative” does not move it out of §1.48-1(e) if it is a wall.
Why cost segregation is common for commercial buildings
Thirty-nine years is the longest standard recovery period most owners deal with. Commercial properties also often contain business-specific items: equipment wiring, retail fixtures, kitchen hook-ups, decorative finishes, and substantial site work. Identifying those components is what moves cost into shorter classes.
The legal tests are the same tests used for residential property — Treas. Reg. §1.48-1, the Whiteco factors, and the class-life tables — applied to commercial facts. Industry matrices exist for retail, restaurants, casinos, auto dealerships, and a few other activities. There is no office matrix.
A warehouse shell with little loose equipment may have less to reclassify than a restaurant. The study still starts from the records and the inspection, not from an assumed commercial percentage. There is no standard reclassification rate for offices, stores, or industrial buildings, and no figure in this library is a typical result.
Exceptions inside the building
Qualified improvement property — interior improvements made after the building was first placed in service, excluding enlargements, elevators and escalators, and internal structural framework — is 15-year property. Retail motor fuels outlets meeting the statute are 15-year property too.
QIP is available only for nonresidential buildings. A later interior remodel of an office or store can be 15-year property even though the original building remains 39. Residential rental interiors do not use QIP.
Section 168(n) adds an elective 100% allowance for a defined portion of nonresidential real property used in a qualified production activity. That election is separate from cost segregation, has its own windows and exclusions, and should be discussed with a CPA. This article does not determine eligibility.
ADS
Taxpayers who must use ADS — for example, an electing real property trade or business under §163(j) — depreciate nonresidential real property over 40 years, and qualified improvement property over 20 years.
Property required to use ADS is not bonus-eligible. A study prepared on a GDS assumption will not match a return that must use ADS. State the system in the report.
A voluntary ADS election for real property is made property by property and is irrevocable. It is a return election, not a classification in the study.
Conventions and placed-in-service month
Mid-month is required for nonresidential real property. A December placement still produces a half-month of depreciation in the first year, not a full year and not zero.
The building is excluded from the mid-quarter 40% test. Personal property placed in service the same year is not. A large fourth-quarter placement of 5-year components can still flip the personal-property convention. Plan those placements with your CPA if several studies will close in the same year.
Recapture
The building is §1250 property. Recapture as ordinary income is generally limited to additional depreciation above straight line. MACRS already requires straight line, so additional depreciation on the building is usually none.
Personal property pulled out of the building is generally §1245 property and is recaptured as ordinary income to the extent of depreciation taken. The study changes the mix of those two results on a later sale.
Sources
- 1
- 2IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 3
- 4Public Law 119-21 (July 4, 2025), §§70301, 70306, 70307(opens in a new tab)
The 2025 reconciliation law, which the IRS describes as commonly known as the One, Big, Beautiful Bill Act.