Net lease glossary
Depreciation (Cost Recovery)
A tax deduction that lets owners recover the cost of a building, not land, over its IRS-defined useful life.
Depreciation lets real estate owners deduct the cost of improvements over time. Under current rules, nonresidential real property is generally depreciated over 39 years and residential rental property over 27.5 years; land is not depreciable. Cost segregation studies can accelerate deductions for components with shorter lives. Depreciation reduces taxable income during ownership but is subject to recapture on sale unless deferred, for example through a 1031 exchange.