What is Flooring Depreciation Life in Commercial Real Estate?

In commercial real estate, flooring depreciation life refers to the period over which the cost of flooring improvements (like carpet, tile, hardwood, or vinyl) can be depreciated for tax purposes.

Key Points:

• Standard Depreciation Life: Flooring is generally considered a capital improvement and depreciated over 5 or 7 years under the Modified Accelerated Cost Recovery System (MACRS), depending on how it’s classified.
• 5-Year Life: If the flooring is part of furniture, fixtures, or equipment (FF&E), like carpet installed over an existing subfloor, it may qualify for a 5-year depreciation schedule.
• 7-Year Life: Some flooring may fall into a 7-year category, especially if it’s considered personal property not integral to the building structure.
• 39-Year Life: If the flooring is considered part of the building structure (e.g., tile or wood permanently affixed), it might be depreciated over the 39-year life of the building.
• Bonus Depreciation: Under current tax laws (subject to phase-out schedules), certain flooring improvements might be eligible for 100% bonus depreciation in the year placed in service if they qualify as personal property.

Practical Example:

• A commercial property owner installs $100,000 worth of carpet that can be classified as FF&E.
• Using a 5-year MACRS schedule, they can depreciate the full cost over 5 years (or take bonus depreciation if applicable).

Why It Matters:

Understanding the correct depreciation life allows property owners and investors to:

• Maximize tax deductions
• Improve after-tax cash flow
• Comply with IRS rules and avoid audit issues