MACRS 39-Year Nonresidential Real Property — Depreciation Schedule 2025 & 2026
Nonresidential real property (office buildings, retail, warehouses, hotels) is 39-year MACRS property. Straight-line depreciation over 39 years with the mid-month convention — IRS Publication 946 Table A-7a.
Recovery period
39 years
mid-month convention
Section 179 eligible?
No
Real property excluded
Bonus depreciation
N/A
Not eligible — use cost segregation
What qualifies as 39-Year nonresidential real property?
- Office buildings and commercial towers
- Retail shopping centers and standalone stores
- Warehouses and industrial buildings
- Hotels, motels, and short-term lodging
- Restaurants (the building itself; interior improvements are QIP / 15-year)
- Medical and dental offices, self-storage facilities
Source: IRS Publication 946, Table A-7a. If your asset is not explicitly classified, consult Rev. Proc. 87-56 asset-class tables or default to 7-year property.
Straight-line depreciation schedule — $800,000 asset
Worked example: a $800,000 nonresidential real property placed in service with no Section 179 and no bonus depreciation, showing the raw 39-Year straight-line schedule.
| Tax year | Rate | Deduction | Accumulated | Book value |
|---|---|---|---|---|
| 1 | 1.28% | $10,256.41 | $10,256.41 | $789,743.59 |
| 2 | 2.56% | $20,512.82 | $30,769.23 | $769,230.77 |
| 3 | 2.56% | $20,512.82 | $51,282.05 | $748,717.95 |
| 4 | 2.56% | $20,512.82 | $71,794.87 | $728,205.13 |
| 5 | 2.56% | $20,512.82 | $92,307.69 | $707,692.31 |
| 6 | 2.56% | $20,512.82 | $112,820.51 | $687,179.49 |
| 7 | 2.56% | $20,512.82 | $133,333.33 | $666,666.67 |
| 8 | 2.56% | $20,512.82 | $153,846.15 | $646,153.85 |
| 9 | 2.56% | $20,512.82 | $174,358.97 | $625,641.03 |
| 10 | 2.56% | $20,512.82 | $194,871.79 | $605,128.21 |
| 11 | 2.56% | $20,512.82 | $215,384.61 | $584,615.39 |
| 12 | 2.56% | $20,512.82 | $235,897.43 | $564,102.57 |
| 13 | 2.56% | $20,512.82 | $256,410.25 | $543,589.75 |
| 14 | 2.56% | $20,512.82 | $276,923.07 | $523,076.93 |
| 15 | 2.56% | $20,512.82 | $297,435.89 | $502,564.11 |
| 16 | 2.56% | $20,512.82 | $317,948.71 | $482,051.29 |
| 17 | 2.56% | $20,512.82 | $338,461.53 | $461,538.47 |
| 18 | 2.56% | $20,512.82 | $358,974.35 | $441,025.65 |
| 19 | 2.56% | $20,512.82 | $379,487.17 | $420,512.83 |
| 20 | 2.56% | $20,512.82 | $399,999.99 | $400,000.01 |
| 21 | 2.56% | $20,512.82 | $420,512.81 | $379,487.19 |
| 22 | 2.56% | $20,512.82 | $441,025.63 | $358,974.37 |
| 23 | 2.56% | $20,512.82 | $461,538.45 | $338,461.55 |
| 24 | 2.56% | $20,512.82 | $482,051.27 | $317,948.73 |
| 25 | 2.56% | $20,512.82 | $502,564.09 | $297,435.91 |
| 26 | 2.56% | $20,512.82 | $523,076.91 | $276,923.09 |
| 27 | 2.56% | $20,512.82 | $543,589.73 | $256,410.27 |
| 28 | 2.56% | $20,512.82 | $564,102.55 | $235,897.45 |
| 29 | 2.56% | $20,512.82 | $584,615.37 | $215,384.63 |
| 30 | 2.56% | $20,512.82 | $605,128.19 | $194,871.81 |
| 31 | 2.56% | $20,512.82 | $625,641.01 | $174,358.99 |
| 32 | 2.56% | $20,512.82 | $646,153.83 | $153,846.17 |
| 33 | 2.56% | $20,512.82 | $666,666.65 | $133,333.35 |
| 34 | 2.56% | $20,512.82 | $687,179.47 | $112,820.53 |
| 35 | 2.56% | $20,512.82 | $707,692.29 | $92,307.71 |
| 36 | 2.56% | $20,512.82 | $728,205.11 | $71,794.89 |
| 37 | 2.56% | $20,512.82 | $748,717.93 | $51,282.07 |
| 38 | 2.56% | $20,512.82 | $769,230.75 | $30,769.25 |
| 39 | 2.56% | $20,512.82 | $789,743.57 | $10,256.43 |
| 40 | 1.28% | $10,256.41 | $799,999.98 | $0.02 |
Rates from IRS Publication 946 Table A-7a. Computed at build time — no hardcoded schedules.
Mid-month convention: the placed-in-service month sets year one
IRS Publication 946 Table A-7a is a month-by-month grid rather than a single column of rates, because real property uses the mid-month convention: every building is treated as placed in service at the midpoint of its actual placed-in-service month. Year one therefore earns half of that month plus all remaining months of the year, and the same half-month logic applies in the year you sell or retire the property.
Worked example: a $800,000 depreciable basis placed in service in July earns 5.5 months of depreciation in year one — about $9,402 — versus $20,513 in each full year afterward. Place the same property in service in December and year one shrinks to half a month, about $855. The formula behind Table A-7a is: first-year deduction = basis × (months in service − 0.5) ÷ 12 ÷ 39.
Look up your exact placed-in-service month in IRS Publication 946, Appendix A, Table A-7a — the schedule above uses a simplified half-year split of the first and final years, while the IRS table prorates by your specific month.
Section 179 and bonus depreciation — 2025 vs 2026
| Parameter | 2025 (OBBBA) | 2026 (indexed) |
|---|---|---|
| §179 deduction limit | $2,500,000 | $2,560,000 |
| §179 phase-out threshold | $4,000,000 | $4,090,000 |
| Bonus depreciation (post-2025-01-20) | 100% | 100% |
| Bonus depreciation (pre-2025-01-20) | 40% (TCJA phase-down) | — |
| Applies to this asset class? | ✗ Building not eligible | ✗ Building not eligible |
Source: One Big Beautiful Bill Act (signed July 2025) and IRS Rev. Proc. 2025-32 (2026 inflation adjustments). Pre-OBBBA property uses TCJA phase-down: 80% (2023), 60% (2024), 40% (2025 pre-1/20).
How §179, bonus depreciation, and MACRS stack
The 39-year building itself is outside both regimes: §179 excludes it, and bonus depreciation only reaches property with a recovery period of 20 years or less. The practical route to acceleration is a cost-segregation study, which reclassifies parts of the purchase — appliances and carpet (5-year), furniture (7-year), land improvements and qualified improvement property (15-year) — into classes that DO qualify for §179 expensing up to $2,560,000 (2026) and 100% bonus depreciation. Only the basis that stays in the 39-year class follows the straight-line, mid-month schedule above.
Half-year vs mid-quarter convention
Neither convention applies to the building: real property always uses the mid-month convention described above and is excluded from the mid-quarter test entirely. The half-year / mid-quarter distinction still matters to landlords, though — short-life assets from a cost-segregation study are personal property, and if more than 40% of that basis is placed in service in the last 3 months of the year, ALL of it drops to mid-quarter first-year rates (1.5 months for a fourth-quarter asset instead of 6). Basis expensed under §179 is excluded from the test.
Source: IRS Publication 946, ch. 4, "Which Convention Applies?" The mid-quarter percentage tables are Tables A-2 through A-5 in Appendix A.
GDS vs ADS for 39-year nonresidential real property
Everything above uses the General Depreciation System (GDS) — the default MACRS system. The Alternative Depreciation System (ADS) stretches the same basis over a longer period using straight-line only.
| Feature | GDS (default) | ADS |
|---|---|---|
| Recovery period | 39 years | 40 years |
| Method | Straight line | Straight line |
| Bonus depreciation | Not available (building) | Not available where ADS is required |
| Who uses it | Most taxpayers, by default | Required for electing real property businesses (§163(j)), tax-exempt-use, bond-financed, and predominantly-foreign-use property; elective otherwise |
Nonresidential real property uses a 40-year ADS period — required for electing real property trades or businesses under §163(j) and for certain foreign-use or tax-exempt-use property. On the $800,000 example, ADS reduces the full-year deduction from $20,513 (over 39 years) to $20,000 (over 40 years).
Common mistakes and gotchas
- Hotels with transient-stay revenue over 50% are still 39-year, but if >80% rent is from longer-term dwelling stays they flip to 27.5-year residential rental — check the mix annually.
- Interior improvements made AFTER a building is placed in service may qualify as 15-year QIP, not 39-year. This includes most tenant improvements, drywall, flooring, and non-structural HVAC.
- Roofs, HVAC, fire protection, alarms, and security systems became §179-eligible post-TCJA — you do NOT have to treat them all as 39-year anymore.
- Land is excluded — typical allocations are 70-80% to building, 20-30% to land. Land ratios vary by local market and must be documented.
- Cost segregation on commercial property often reclassifies 20-40% of basis into shorter 5/7/15-year classes, which are §179- and bonus-eligible.
Frequently asked questions
How do I depreciate a commercial building?
Nonresidential real property (office, retail, warehouse, hotel) is depreciated over 39 years using straight-line depreciation with the mid-month convention (IRS Pub 946 Table A-7a). An $800,000 commercial building deducts about $20,513 per year after the mid-month first-year proration.
Does Section 179 apply to commercial buildings?
The building shell itself (39-year property) is NOT §179-eligible. But post-TCJA, roofs, HVAC, fire protection, alarms, and security systems can be §179-expensed up to the 2025 $2,500,000 limit. Interior improvements (QIP) are 15-year and also §179/bonus eligible.
Can I take bonus depreciation on an office building?
Not on the 39-year building itself. But the interior improvements (QIP at 15-year), personal property carved out via cost segregation (5/7-year classes), and land improvements (15-year) all qualify for 100% bonus depreciation post-OBBBA (property placed in service 2025-01-20 or later).
Is a restaurant 39-year or 27.5-year MACRS?
Restaurants are 39-year nonresidential real property. However, the interior tenant improvements made after the building is placed in service (kitchen build-out, dining-room finishes, wall treatments) qualify as 15-year QIP and are §179- and bonus-eligible.
How much of a commercial property can I deduct each year?
Under straight-line 39-year MACRS, you deduct roughly 1/39 ≈ 2.564% of the depreciable basis per year after the first partial year. A cost-segregation study can accelerate 20-40% of the basis into 5/7/15-year classes that deduct much faster.
Does the mid-quarter convention apply to 39-year real property?
No. Real property always uses the mid-month convention and is excluded from the mid-quarter test. The mid-quarter convention only applies to MACRS personal property when more than 40% of the year's aggregate depreciable basis goes into service in the last 3 months — and short-life assets carved out by a cost-segregation study DO count toward that test.
What is the ADS recovery period for nonresidential real property?
40 years under the Alternative Depreciation System, versus 39 years under GDS — both straight-line. Nonresidential real property uses a 40-year ADS period — required for electing real property trades or businesses under §163(j) and for certain foreign-use or tax-exempt-use property.
Does the month I place the property in service change my first-year deduction?
Yes. Under the mid-month convention, each building earns half of its placed-in-service month plus every remaining month. A $800,000 building placed in service in July earns 5.5 months of depreciation in year one — about $9,402, versus $20,513 for a full year. A January start captures nearly the full year; a December start captures only half a month (about $855).
When am I required to use ADS instead of the 39-year GDS schedule?
ADS is mandatory for real property trades or businesses that elect out of the §163(j) business-interest limitation, for tax-exempt use or tax-exempt bond-financed property, and for property used predominantly outside the United States. It can also be elected voluntarily on a timely filed return, but the election is irrevocable.
MACRS asset classes compared
| Asset class | Recovery period | Method | Convention | §179 | Bonus |
|---|---|---|---|---|---|
| 5-Year Property | 5 yrs | 200% declining balance, switching to straight line | half-year | Yes | Yes |
| 7-Year Property | 7 yrs | 200% declining balance, switching to straight line | half-year | Yes | Yes |
| 15-Year Property | 15 yrs | 150% declining balance, switching to straight line | half-year | Yes | Yes |
| 27.5-Year Residential Rental Property | 27.5 yrs | Straight line | mid-month | No | No |
| 39-Year Nonresidential Real Property (this page) | 39 yrs | Straight line | mid-month | No | No |
Run your own schedule with the MACRS depreciation calculator, and estimate the tax bill when you sell with the depreciation recapture calculator.
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