Estimate the annual depreciation deduction on a residential rental — 27.5-year straight line with the IRS mid-month convention, and the math shown.
| Year | Rate | Deduction | Cumulative |
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Depreciation lets you deduct the cost of a rental building over time, on the theory that it wears out. It is the largest deduction most landlords have, and unlike repairs it requires no cash out of pocket in the year you claim it — you already spent the money when you bought the property.
You depreciate the building, not the land. Land does not wear out, so its value is excluded from the basis entirely. You also depreciate capital improvements — a new roof, an HVAC system, a kitchen renovation — usually over their own schedules. You do not depreciate ordinary repairs; those are deducted in full in the year you pay them. The line between a repair and an improvement is one of the most common places landlords get this wrong.
Use the ratio on your county property tax assessment — it lists land and improvement values separately, and applying that ratio to your purchase price is the method the IRS most readily accepts. A formal appraisal also works. Land is commonly 15–30% of total value, but it varies enormously by market, so use your actual assessment rather than a rule of thumb.
The IRS assigns residential rental property a 27.5-year recovery period under MACRS GDS. Commercial property is 39 years — this calculator covers residential only. Straight-line means you deduct the same amount every full year: the basis divided by 27.5, which works out to 3.636% annually.
Whatever day of the month you place a property in service, the IRS treats it as the middle of that month. A property placed in service on 2 June and one placed in service on 28 June get the same first-year deduction. That is why the first year is a partial year — and why buying in December yields a first-year deduction of only 0.152% of basis.
Basis $240,000 → year 1 = $240,000 × 1.970% = $4,728 → years 2+ = $8,727/year.
Depreciation begins when the property is placed in service — ready and available to rent — not when you bought it and not when a tenant moves in. A vacant unit that is listed and rent-ready is in service. A unit being gutted is not.
Depreciation is a deferral, not a forgiveness. When you sell, the total you claimed is recaptured and taxed at up to 25%. Critically, the IRS recaptures the depreciation you were allowed to take, whether or not you actually claimed it — so skipping depreciation does not avoid recapture, it just wastes the deduction. A 1031 exchange can defer it.
Depreciation is only as good as your basis records — purchase documents, closing statement, improvement receipts, and the year each item went into service. My Rental Spot tracks income, expenses and capital improvements per property so the numbers are there at tax time. Free for unlimited properties.
Subtract the land value from the purchase price plus capitalised closing costs and improvements to get the depreciable basis, then divide by 27.5. A $300,000 property with $60,000 of land has a $240,000 basis and an annual deduction of $8,727.
The IRS assigns residential rental property a 27.5-year recovery period under MACRS. Commercial property uses 39 years.
No. Land is not considered to wear out, so it is excluded from the depreciable basis. Split land from building value using the ratio on your county property tax assessment.
The IRS treats a rental property as placed in service in the middle of whatever month it actually was, so the first year is always partial. Placing a property in service in January gives a first-year deduction of 3.485% of basis; December gives 0.152%.
It is recaptured and taxed at up to 25%. The IRS recaptures the depreciation you were allowed to claim whether or not you claimed it, so there is no benefit to skipping it. A 1031 exchange can defer the tax.
No. This calculator gives an estimate for planning only. Confirm your figures with a CPA or tax professional.
My Rental Spot tracks income, expenses and capital improvements per property, so the numbers behind your depreciation schedule are already in one place at tax time.
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