What Is the Depreciation Life of an Elevator?
Learn how an elevator's status as a structural component determines its depreciation life and limits common accelerated write-off strategies for property owners.
Depreciation is an annual income tax deduction that allows you to recover the cost of certain property over its useful life. For real estate investors and business owners, this means the cost of a building and its components can be written off as an expense, reducing taxable income. The concept acknowledges that assets like buildings and equipment wear out or become obsolete over time. The Internal Revenue Service (IRS) provides specific guidelines for how these assets must be treated for tax purposes.
Determining the Recovery Period
The standard method for calculating depreciation for most business and investment property is the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, an elevator’s depreciation timeline is dictated by the classification of the building in which it is installed. The IRS views an elevator as an integral structural component of the building, meaning its cost is recovered over the same period as the building itself.
For tax purposes, real estate is divided into two main categories. The first is nonresidential real property, which includes commercial buildings like office towers, retail stores, and warehouses. Elevators installed in these types of properties are depreciated over a 39-year period.
The second category is residential rental property, which encompasses buildings where at least 80% of the gross rental income comes from dwelling units, such as apartment buildings. For these properties, the MACRS recovery period is 27.5 years. Consequently, an elevator in an apartment complex would be depreciated over this shorter 27.5-year timeline.
Accelerated Depreciation Options
One common method for accelerating deductions is the Section 179 deduction, which allows taxpayers to expense the full cost of certain property in the year it is placed in service. However, Section 179 is designed for tangible personal property and excludes assets considered structural components of a building. Because the IRS classifies elevators as part of the building’s structure, they are ineligible for this immediate expensing option.
Another method is bonus depreciation, which allows for an additional first-year deduction for qualified property. This benefit is being phased out; for property placed in service in 2025, the bonus depreciation rate is 40%, decreasing to 20% in 2026 before being eliminated. The Tax Cuts and Jobs Act of 2017 expanded bonus depreciation to include Qualified Improvement Property (QIP), which refers to certain improvements made to the interior of a nonresidential building. However, the law specifically excludes expenditures for elevators, escalators, or the internal structural framework of the building from the definition of QIP.
The rules for QIP were clarified by the CARES Act, which established a 15-year recovery period and made it eligible for bonus depreciation. Despite this change, the exclusion of elevators from the definition of QIP remains. This means they cannot benefit from this accelerated treatment.
Special Considerations for Elevator Costs
The tax treatment of elevator costs depends on the type of expenditure. A complete modernization or replacement is a capital improvement that must be capitalized and depreciated over the building’s 27.5- or 39-year recovery period. In contrast, routine maintenance, such as fixing a button or replacing a cable, is considered a repair and can be fully deducted as a business expense in the year incurred.
A cost segregation study can help optimize depreciation deductions for an elevator project. This engineering-based analysis dissects project costs and may reclassify certain assets into shorter depreciation categories. While the main elevator cab, shaft, and machinery remain 27.5- or 39-year property, the study might identify related assets like dedicated electrical wiring or specialized lighting that can be depreciated more quickly as 5- or 15-year property.
When an elevator is installed in a private residence for medical reasons, the cost is not business depreciation but may qualify as a medical expense. The deduction is limited to the amount that the cost exceeds the increase in the home’s value. This amount is then subject to the taxpayer’s adjusted gross income (AGI) limitations for medical expenses.