The short answer
27.5-year property is residential rental property, a building in which 80% or more of the gross rental income for the year comes from dwelling units, and 39-year property is nonresidential real property, any other section 1250 building without a shorter class life. Both recovery periods come from section 168(c) and use the straight-line method with the mid-month convention. The 80% test, not the type of tenant, decides which period applies.
At a glance
| 27.5 years | Residential rental property: 80% or more of gross rental income from dwelling units |
|---|---|
| 39 years | Nonresidential real property, such as an office building, store or warehouse |
| Method | Straight line, mid-month convention |
| ADS periods | 30 years residential (placed in service after 2017) and 40 years nonresidential |
Section 168(e)(2) sets the 80% test and the meaning of a dwelling unit.
Under section 168(e)(2)(A), residential rental property is any building or structure if 80% or more of its gross rental income for the taxable year is rental income from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations, but not a unit in a hotel, motel or other establishment where more than half the units are used on a transient basis. If you occupy part of the building, its gross rental income includes the rental value of your part.
Section 168(e)(2)(B) defines nonresidential real property as section 1250 property that is neither residential rental property nor property with a class life under 27.5 years. Publication 946 gives office buildings, stores and warehouses as examples and lists the alternative depreciation system periods: 30 years for residential rental property placed in service after 2017 and 40 years for nonresidential real property.
Worked example: a mixed-use building on either side of the line.
Hypothetical: a building with apartments upstairs and a shop at street level collects $100,000 of gross rent, $85,000 from the apartments and $15,000 from the shop. Eighty-five percent comes from dwelling units, so it is 27.5-year property. If the shop paid $25,000 and the apartments $75,000, it would fall to 75% and be 39-year property.
On a $1,000,000 depreciable basis, a full year of straight-line depreciation is about $36,400 over 27.5 years and about $25,600 over 39 years, roughly $10,800 a year of difference. The first and last years are smaller because section 168 applies the mid-month convention, which treats property placed in service or disposed of during any month as placed in service or disposed of at the middle of that month. Run your own numbers with your CPA.
Where it bites: exchanging between residential and commercial property.
Reg. section 1.168(i)-6 governs the carried-over basis. If the replacement has a longer recovery period, such as an apartment building exchanged into an office or retail DST, the exchanged basis is depreciated as though the replacement had been placed in service when the relinquished property was, but over the longer period. If the replacement's period is shorter, you keep the relinquished property's remaining period. Basis added with new money is treated as newly placed in service.
The same regulation lets you elect out and treat the entire basis as placed in service at the time of replacement. For the decision, see residential vs nonresidential depreciation and depreciating replacement property after a 1031; for recapture on either type, see section 1250 property.
Related questions
Are short-term rentals 27.5-year property?
Not necessarily. Section 168(e)(2) excludes units in an establishment where more than half the units are used on a transient basis from the dwelling unit definition, so a building rented mostly to transient guests can be 39-year property.
Is the 80% test applied once or every year?
The statute measures gross rental income for the taxable year. Track the split each year in a mixed-use building and ask your CPA how a change is handled.
Does land get either period?
No. Land is not depreciable. Allocate the purchase price between land and building before applying either recovery period.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.