Depreciation is the decline in the total value of a piece of property. It should be noted that depreciation can only occur to the building itself and not the property the building is located on. According to tax laws, residential properties must be depreciated over a 27.5 year term, and commercial property must be depreciated over a 39 year term. It can be used as an income tax deduction for businesses when filing an annual tax report with the Internal Revenue Service. The IRS gives an allowance to a business for the normal wear and tear of a piece of property as long as the individual that files owns the property, uses the space for an income producing activity, and has a continued useful life of at least one year.