Rental Property Depreciation Calculator
Calculate annual depreciation deduction for rental property using the 27.5-year straight-line method.
Results
Visualization
How It Works
Rental property depreciation is a powerful tax deduction that allows you to deduct the cost of the building (not land) over 27.5 years. This is a 'paper loss' — you save on taxes without spending any money.
The Formula
Variables
- Depreciable Basis — Total value that can be depreciated (building + improvements, not land)
- 27.5 years — IRS straight-line depreciation period for residential rental property
- Land Value — Portion of purchase price allocated to land (not depreciable, typically 15-30%)
Worked Example
$350,000 purchase, 20% land: Building = $280,000. Plus $25,000 improvements = $305,000 basis. Annual depreciation = $305,000 / 27.5 = $11,091. In the 25% bracket, that saves $2,773/year in taxes.
Practical Tips
- Depreciation is the single biggest tax advantage of rental property ownership.
- Land is NOT depreciable — get a professional allocation (typically 15-30% land).
- Capital improvements (roof, HVAC, renovation) increase your depreciable basis.
- Depreciation recapture is taxed at 25% when you sell — plan for it.
- Cost segregation studies can accelerate depreciation for larger properties, front-loading deductions.
Frequently Asked Questions
What is depreciation recapture?
When you sell, the IRS 'recaptures' depreciation you've taken by taxing it at 25% (Section 1250). If you depreciated $100,000 over your holding period, you owe $25,000 in recapture tax at sale.
Can I depreciate a property I live in?
No — only rental and investment properties qualify. If you rent out part of your home, you can depreciate only the rental portion.
How do I determine land value?
Methods: county tax assessment (often splits land/building), independent appraisal, or comparable land sales. The IRS accepts reasonable allocations.
What about commercial rental property?
Commercial property (non-residential) is depreciated over 39 years instead of 27.5 years.
Can depreciation create a tax loss?
Yes — depreciation can create a paper loss even when you have positive cash flow. If your AGI is under $100K, you can deduct up to $25,000 of passive losses. Above $150K, the deduction phases out unless you're a real estate professional.