Over how many years is residential real property depreciated under MACRS?

Residential real property is depreciated over a period of 27½ years under the Modified Accelerated Cost Recovery System (MACRS). This system is specifically designed for asset depreciation in the U.S. tax code and is used to calculate how much of the property’s value can be deducted as a depreciation expense each year.

The reason residential real property has this specific useful life is tied to the IRS’s categorization of assets. Residential properties, such as apartments or rental homes, are deemed to provide their utility over a longer time frame than personal property, which can be depreciated over shorter periods, like five years. This long depreciation period reflects the stability and longevity generally associated with real estate investments.

Understanding this 27½-year depreciation period is crucial for tax preparers, as it influences how clients value their property investments and plan their tax strategies. It allows property owners to reduce their taxable income through calculated depreciation deductions, which can yield significant tax benefits over time.