Rental Property Depreciation Calculator
Straight-line depreciation over 27.5 years, with land correctly excluded and the first year prorated from the month you placed the property in service.
Annual depreciation
$0
Depreciable basis
$0
First-year deduction
$0
Monthly
$0
Uses the IRS mid-month convention: the first month counts as half a month regardless of the day you placed the property in service.
How Rental Depreciation Works
Depreciation lets you deduct the cost of the building — not the land — a little each year across its IRS recovery period. For residential rental property that period is 27.5 years, on a straight-line basis, meaning the same amount every full year.
Annual depreciation = (cost basis − land value) ÷ 27.5
cost basis = purchase price + capitalized closing costs + pre-service improvements
It is the most valuable deduction in small residential real estate precisely because it is not a cash expense. The building is often appreciating in market value while you deduct its cost, which is how a property can produce positive cash flow and still show a taxable loss.
A Worked Example
| Purchase price | $300,000 |
| Capitalized closing costs | +$4,000 |
| Cost basis | $304,000 |
| Less land value (20%) | −$60,000 |
| Depreciable basis | $244,000 |
| Annual depreciation (÷ 27.5) | $8,873 |
At a 24% marginal rate that deduction is worth roughly $2,130 a year in tax — on a property where no cash left your pocket to earn it.
Getting the Land Allocation Right
Land is never depreciable, so how you split the purchase price between land and building directly changes your deduction — and it is the part of this calculation most likely to be questioned. Two defensible approaches:
- Tax assessment ratio. If your county assesses land at 20% of total value, apply 20% to your purchase price. Simple, common, and documented by a third party.
- Appraisal. An appraisal that separately values land is stronger, and worth having on an unusual property.
Land typically runs 15–30% of value, but the range is wide: a dense urban lot can exceed half, while a modest house on cheap rural land may be well under. Whatever you use, keep the document you based it on.
Repairs vs. Improvements
The distinction decides whether you deduct the whole cost this year or spread it over decades:
Repairs — deduct now
- Fixing a leak
- Repainting between tenants
- Patching drywall
- Servicing the furnace
- Replacing a broken window pane
Improvements — depreciate
- New roof
- Kitchen remodel
- Room addition
- New HVAC system
- Replacing all the windows
Shorter-lived assets — appliances, carpet, furniture — typically use 5 to 7 year recovery periods rather than 27.5, so breaking them out accelerates the deduction.
Recapture: The Part People Forget
When you sell, depreciation you claimed is recaptured and taxed at up to 25%, separately from capital gains. The critical detail: recapture applies to the depreciation you were allowed to take, claimed or not. Skipping depreciation does not avoid the tax — it just forfeits the deduction while keeping the bill.
A 1031 exchange can defer both recapture and gain by rolling into another investment property. That is a specialist transaction with strict deadlines — see our 1031 exchange guide.
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