The two schedules
Residential rental property uses a 27.5-year straight-line schedule; commercial uses 39 years. Shorter recovery means a larger annual deduction per dollar of building basis.
What counts as residential
Property is residential for this purpose if it derives 80%+ of its rental income from dwelling units. Mixed-use buildings can require an allocation.
Effect on cash flow
A residential building throws off more depreciation each year, sheltering more income — one reason small investors favor residential rentals.
Frequently asked questions
What's the depreciation period for residential vs commercial?
27.5 years residential, 39 years commercial, both straight line.
Which gives a bigger deduction?
Residential — the shorter 27.5-year schedule means a larger annual deduction per dollar of basis.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.