Depreciation of Land & Buildings

by Marquis Codjia ; Updated September 26, 2017

Buildings and land represent substantial investment assets in corporate balance sheets. As an individual taxpayer and property owner, correctly depreciating and valuing buildings and land can help you prepare accurate financial and tax reports.

Depreciation Defined

Depreciation is a business method that allows you to recover the cost of a tangible asset, such as buildings, over several years. You may only depreciate fixed assets, such as equipment, property and machinery.

Building Depreciation

The Internal Revenue Service (IRS) allows a taxpayer to recover the cost of non-residential property over 31.5 years. For instance, if you own a building valued at $31.5 million, the annual depreciation expense is $1 million ($31.5 million divided by 31.5).

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Land Depreciation

IRS guidelines and financial accounting rules do not allow land depreciation. You may recover the cost of land when you sell the property.

Other Considerations

Properly depreciating assets is an important element in financial planning decisions because depreciation expense helps lower taxable income. This expense also provides a financial incentive because you do not for it, unlike salaries and other expenses.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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