Multifamily Depreciation Question - 27.5 or 39 Years?

Investor · South Central, KY · Member since 2015 · 14 posts · 1 vote

I have a 10 unit apartment building that is considered a commercial property by the bank, but does the IRS still consider this a residential property? I was reading this article Real Estate Depreciation: A Deeper Look and it implies that multifamily properties over four units are still considered residential in terms of depreciation (27.5 years). Is this correct, Thanks

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Logan AllecBusiness Member

Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes

10y

Yes, it's still residential rental property depreciated over 27.5 years. According to “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units. A 10-unit apartment building clearly passes this test as presumably 100 percent of the gross rental income is rental income from dwelling units.

How the bank classifies the building is irrelevant in determining the tax depreciation method.

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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
10y
Yes, it's still residential rental property depreciated over 27.5 years. According to “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units. A 10-unit apartment building clearly passes this test as presumably 100 percent of the gross rental income is rental income from dwelling units.
How the bank classifies the building is irrelevant in determining the tax depreciation method.
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Jon Begley
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Investor · South Central, KY · Member since 2015 · 14 posts · 1 vote
10y
Originally posted by @Logan Allec:

Yes, it's still residential rental property depreciated over 27.5 years. According to “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units. A 10-unit apartment building clearly passes this test as presumably 100 percent of the gross rental income is rental income from dwelling units.
How the bank classifies the building is irrelevant in determining the tax depreciation method.
Awesome, thank you for taking the time to answer my question
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Susan O.
Fresno, CA · Member since 2015 · 552 posts · 181 votes
8y
If I have a mixed use building 50% from apartment 50% from office could we split the depreciation to 27.5 for the apartments and 39 yrs for the office?
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Susan O.
Fresno, CA · Member since 2015 · 552 posts · 181 votes
8y
Originally posted by @Logan Allec:

Yes, it's still residential rental property depreciated over 27.5 years. According to “residential rental property” means any building or structure if 80 percent or more of the gross rental income from such building or structure for the taxable year is rental income from dwelling units. A 10-unit apartment building clearly passes this test as presumably 100 percent of the gross rental income is rental income from dwelling units.
How the bank classifies the building is irrelevant in determining the tax depreciation method.
How about if it's 50% ?
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Marc Izquierdo
Investor · Bristol Borough, PA · Member since 2016 · 135 posts · 53 votes
8y
@Susan O. Sounds like if 80% of the buildings income comes from dwelling units then it’s 27.5. So in your case, since 50% is coming from dwelling units, you would depreciate at 39. Not sure about splitting it but based on what was posted, it seems like they’re looking at how the whole structure performs and therefore classifying the whole structure. So I would think that you couldn’t split it.
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