Author: Robert K Valentine Jr.
Depreciating a building is nothing like depreciating a vehicle or a piece of equipment. There’s no bonus depreciation, no Section 179 deduction, and no choice of method — real property depreciates under MACRS using the straight-line method only, over a fixed recovery period, using a convention many business owners have never encountered: the mid-month convention. This article walks through how that convention works, then applies it to two examples: a $2,000,000 office building (nonresidential real property) and a $1,375,000 apartment building (residential rental property).
The Building Blocks: Real Property Under MACRS
Four rules govern how buildings are depreciated, and all four are different from the rules that apply to vehicles, machinery, and other personal property.
- The recovery period depends on use. Nonresidential real property — office buildings, retail centers, warehouses, and similar commercial buildings — is depreciated over 39 years. Residential rental property — apartment buildings, duplexes, and single-family homes held for rental — is depreciated over 27.5 years. The building’s use, not its price or size, determines which life applies.
- Straight-line is mandatory. Unlike 5- and 7-year personal property, which can use the 200% or 150% declining balance method, real property must be depreciated using the straight-line method. There’s no election and no faster alternative.
- Land is never depreciable. Only the value of the building itself can be depreciated. The purchase price must be allocated between land and building — typically based on a property tax assessment, appraisal, or cost segregation study — before any depreciation calculation begins.
- Bonus depreciation and Section 179 generally don’t apply. With narrow exceptions for qualified improvement property, the building structure itself is not eligible for bonus depreciation or a Section 179 deduction. It simply depreciates on the straight-line schedule described below, year after year, for the full recovery period.
The Mid-Month Convention
Personal property uses the half-year convention (or, in certain cases, the mid-quarter convention). Real property uses a different rule entirely: the mid-month convention. Under this rule, a building placed in service at any point during a given month is treated as if it were placed in service exactly in the middle of that month — regardless of whether it actually closed on the 1st or the 28th.
That means in the first year, you don’t get a full month of depreciation for the month the building was placed in service — you get a half-month, plus one full month for every month remaining in the year. The same half-month rule applies in reverse in the year the property is sold or otherwise disposed of.
The formula for the first year’s depreciation is:
First-year depreciation = (Depreciable basis ÷ Recovery period) × [(12.5 − Month placed in service) ÷ 12]
where “Month placed in service” is 1 for January, 2 for February, and so on through 12 for December. The IRS publishes this same calculation as ready-to-use percentage tables in Publication 946 — Table A-7a for nonresidential real property and Table A-6 for residential rental property — but the underlying math is identical either way.
Example 1: Commercial (Nonresidential) Real Property
- Property: Office building
- Total purchase price: $2,000,000
- Land allocation: $400,000
- Depreciable basis (building only): $1,600,000
- Placed in service: June 10, 2026
- Recovery period: 39 years, straight-line, mid-month convention
Step 1: Calculate the Full-Year Depreciation Amount
$1,600,000 ÷ 39 years = $41,025.64 per full year
Step 2: Apply the Mid-Month Convention for Year 1
The building was placed in service in June (month 6), so it’s treated as placed in service on June 15. That leaves a half-month of June plus all of July through December — 6.5 of the 12 months in the year:
(12.5 − 6) ÷ 12 = 6.5 ÷ 12 = 0.541667
$41,025.64 × 0.541667 = $22,222.22 depreciation for 2026
Step 3: Depreciate the Full $41,025.64 in Every Subsequent Full Year
From 2027 through 2064 (38 full calendar years), the building depreciates at the full annual rate. The table below shows the pattern, including the final partial year:
| Tax Year | Recovery Year | Calculation | Depreciation Deduction |
|---|---|---|---|
| 2026 | 1 | $41,025.64 × 6.5/12 | $22,222.22 |
| 2027 | 2 | $41,025.64 × 12/12 | $41,025.64 |
| 2028 | 3 | $41,025.64 × 12/12 | $41,025.64 |
| … | … | (same full-year amount) | $41,025.64 |
| 2064 | 39 | $41,025.64 × 12/12 | $41,025.64 |
| 2065 | 40 | $41,025.64 × 5.5/12 | $18,803.42 |
Because the building didn’t go into service on January 1, the 39-year recovery period actually spans 40 calendar years on the depreciation schedule: a partial year in 2026 (6.5/12) and a mirror-image partial year in 2065 (5.5/12), which together add up to exactly one full year of depreciation. This assumes the building is held for the entire recovery period; selling earlier simply cuts the schedule off, applying the same mid-month rule to the month of sale.
Example 2: Residential Rental Property
- Property: Apartment building (12 units)
- Total purchase price: $1,375,000
- Land allocation: $275,000
- Depreciable basis (building only): $1,100,000
- Placed in service: September 20, 2026
- Recovery period: 27.5 years, straight-line, mid-month convention
Step 1: Calculate the Full-Year Depreciation Amount
$1,100,000 ÷ 27.5 years = $40,000 per full year
Step 2: Apply the Mid-Month Convention for Year 1
The building was placed in service in September (month 9), so it’s treated as placed in service on September 15 — a half-month of September plus all of October, November, and December, or 3.5 of the 12 months in the year:
(12.5 − 9) ÷ 12 = 3.5 ÷ 12 = 0.291667
$40,000 × 0.291667 = $11,666.67 depreciation for 2026
Step 3: Depreciate the Full $40,000 in Every Subsequent Full Year
From 2027 through 2053 (27 full calendar years), the building depreciates at the full annual rate, followed by a smaller final stub year:
| Tax Year | Recovery Year | Calculation | Depreciation Deduction |
|---|---|---|---|
| 2026 | 1 | $40,000 × 3.5/12 | $11,666.67 |
| 2027 | 2 | $40,000 × 12/12 | $40,000.00 |
| 2028 | 3 | $40,000 × 12/12 | $40,000.00 |
| … | … | (same full-year amount) | $40,000.00 |
| 2053 | 28 | $40,000 × 12/12 | $40,000.00 |
| 2054 | 29 | $40,000 × 2.5/12 | $8,333.33 |
Notice that the fractional first year (3.5/12) and fractional final year (2.5/12) don’t add up to a full year here — together they total half a year (6/12), which combined with the 27 full years in between accounts for the entire 27.5-year recovery period. That’s why this schedule spans 29 calendar years, from 2026 through 2054, rather than the 28 years a simple rounding of “27.5” might suggest. (The exact number of calendar years a 27.5-year schedule spans can vary slightly depending on the month the property is placed in service — it isn’t always 29.)
Key Takeaways
- The building’s use sets the life: 39 years for commercial and other nonresidential real property, 27.5 years for residential rental property.
- Straight-line is the only method allowed for real property — there’s no accelerated option and no election to make.
- The mid-month convention always applies, treating any placed-in-service date as the midpoint of that month, no matter which day of the month the building actually closed.
- Land is never depreciable. Getting the land/building allocation right is often the single biggest factor in the size of the annual deduction.
- The depreciation schedule runs longer than the stated recovery period in both examples above — 40 calendar years for the 39-year office building, and 29 calendar years for the 27.5-year apartment building — because of the mid-month convention’s half-month treatment at both the start and end of the recovery period.
This article is for general informational purposes only and does not constitute tax or legal advice. Depreciation rules for real property are governed by Section 168 of the Internal Revenue Code and IRS Publication 946; always confirm the land/building allocation and consult a qualified tax professional before applying these rules to your own property.
Simplify Your Fixed Asset Depreciation: Mid-month convention math is easy to get wrong by even a few days, and a small error compounds over a 39-year or 27.5-year schedule. Depreciation Calculator Pro II automatically applies the correct mid-month convention to commercial and residential real property, so every year of the schedule — from the first partial month to the last — is calculated correctly.