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Rental Property Depreciation Calculator

Your building's basis, the 27.5-year deduction, the first-year mid-month math, and what it all saves you at your bracket, plus the cost-seg question worth asking.

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Quick Answer

A residential rental depreciates over 27.5 years, straight-line, roughly 3.64% per year of your building's basis (purchase price minus land, plus improvements). It's the rare deduction that requires no cash outlay, and the IRS effectively makes you take it, because depreciation is recaptured at sale whether you claimed it or not. This calculator gives you the basis, the annual number, and the first-year mid-month figure.

Your Property

Example figures, replace with yours

$

Include closing costs added to basis.

Land isn't depreciable. 15-25% is typical; your county assessment is the usual support.

$

Renovations before renting (roof, kitchen, additions).

When it was ready and available to rent, not when it was purchased.

To show what each year's deduction is worth in cash.

Straight-line MACRS with the mid-month convention. Whether the deduction offsets your other income this year depends on the passive activity rules (or REPS/STR status); that's a separate, important conversation.

Annual Depreciation Deduction

$11,636

Worth $3,724 per year at your bracket · First year (mid-month): $11,152

Depreciable Basis

Purchase price$400,000
Less: land (not depreciable)−$80,000
Plus: improvements+$0
Basis ÷ 27.5 years$320,000

The 10-Year View

Depreciation over 10 years$115,879
Tax value at your bracket$37,081
Potential recapture at sale (25%)$28,970

Recapture is deferrable via a 1031 exchange; model your exit in the capital gains calculator.

Key Insight

The 27.5-year schedule is the slow lane

A cost segregation study typically reclassifies 20-35% of a property's basis into 5-, 7-, and 15-year components eligible for 100% bonus depreciation, potentially turning this year's deduction into six figures on the right property. Whether you can use a deduction that size depends on your passive-loss position (REPS or the STR strategy). That combination is our specialty.

Is the slow lane costing you six figures?

Cost segregation and your passive-loss position decide how much of this depreciation you can use, and when.

Book your free 30-minute tax fit call to talk through your next steps.

Tax planning slots are limited before year-end.

Run the Cost Seg Numbers

Worked example

A $400,000 single-family rental placed in service in January

An investor buys a residential rental for $400,000, including closing costs that go into basis. Land is 20% of the price, there are no capital improvements yet, the property is ready to rent in January, and the investor is in the 32% bracket. These are the calculator's defaults with its $400,000 placeholder price.

Inputs

Worked example inputs
Purchase price$400,000
Land portion20%
Capital improvements$0
Property typeResidential (27.5 years)
Month placed in serviceJanuary
Marginal bracket32%

Calculator output

Worked example calculator output
Land (not depreciable)$80,000
Depreciable basis$320,000
Annual depreciation deduction$11,636
First year (mid-month)$11,152
Annual deduction worth at 32%$3,724
Depreciation over 10 years$115,879
Potential recapture at sale (25%)$28,970

$320,000 divided by 27.5 years is $11,636 a year. Placed in service in January, the mid-month convention counts 11.5 months in year one. If the property is sold after ten years, the same $115,879 of depreciation can be taxed at up to 25% unless the gain is deferred, for example in a 1031 exchange.

Methodology

How this calculator works

The calculator carves land out of the purchase price, spreads the building basis over its MACRS recovery period on a straight line, and applies the mid-month convention to the first year.

Formulas

  • Depreciable basis = purchase price x (1 minus land percentage) + capital improvements.
  • Annual deduction = basis / 27.5 years (residential rental) or / 39 years (commercial).
  • First-year deduction = annual deduction x (12 minus the months before the service month minus 0.5) / 12, the mid-month convention.
  • Tax value = deduction x your marginal bracket. 10-year depreciation = first year + 9 full years. Potential recapture = 10-year depreciation x 25%.

Assumptions

  • Straight-line MACRS under the general depreciation system, with improvements placed in service with the building.
  • The purchase price you enter already includes closing costs that belong in basis.
  • 25% is the maximum rate on unrecaptured section 1250 gain; the actual rate at sale can be lower.

What it ignores

  • Cost segregation, bonus depreciation and section 179 on shorter-life components.
  • Passive activity loss limits, the $25,000 rental allowance, real estate professional status and at-risk rules.
  • The final-year mid-month amount, the alternative depreciation system, and state depreciation differences.

Sources

Primary sources

  1. IRS Publication 527: residential rental property: basis, land, and depreciating a rental
  2. IRS Publication 946: how to depreciate property: MACRS recovery periods, the mid-month convention, and Tables A-6 and A-7a
  3. 26 U.S. Code Section 168: accelerated cost recovery system: straight-line method, 27.5 and 39 year periods, mid-month convention
  4. Instructions for Form 4562: depreciation and amortization
  5. 26 U.S. Code Section 1016: adjustments to basis: basis reduced by depreciation allowed or allowable
  6. 26 U.S. Code Section 1: tax imposed, including section 1(h): 25% maximum rate on unrecaptured section 1250 gain
  7. Instructions for Schedule D (Form 1040): unrecaptured section 1250 gain worksheet
  8. 26 U.S. Code Section 469: passive activity losses
  9. Instructions for Form 3115: change in accounting method: catching up depreciation that was not claimed

Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last reviewed October 20, 2026. Taxstra is a CPA firm serving 1,000+ clients in all 50 states.

Educational, not individualized tax advice.

How Rental Depreciation Actually Works

Depreciation is the deduction you get for owning a building that is, in the IRS's eyes, slowly wearing out, even while it appreciates in the real world. You deduct the building's cost over 27.5 years (39 for commercial), no receipts required. The two places investors leave money on the table: sloppy land allocation (an unexamined 50% land assumption can halve the deduction; a documented 15-20% often stands) and skipped years; depreciation is "allowed or allowable," so unclaimed years still get recaptured at sale. The fix for missed years is a Form 3115 catch-up, claimed all at once in the current year.

Whether the deduction saves you money this year is a separate question: rental losses are passive by default and may be limited against W-2 income. The exceptions, the short-term rental strategy and real estate professional status, are exactly where large depreciation numbers become large refunds. And when you're ready to accelerate the schedule itself, that's the cost segregation conversation.

Key Insight

Depreciation isn't optional record-keeping; it's exit planning

Every dollar of depreciation lowers your basis and returns as recapture at sale (unless deferred via 1031 or erased by step-up at death). The investors who win treat depreciation, entity structure, and exit as one model, not three surprises.

Common Questions

How much depreciation can I take on a rental property?

Residential rentals depreciate over 27.5 years, straight-line, about 3.64% of the building's basis per year. The basis is your purchase price minus land value, plus capital improvements. On a $400,000 property with $80,000 of land value, that's roughly $11,600 of deduction every year before you've spent a dollar on anything.

Why is land excluded from depreciation?

Depreciation compensates for wear and tear, and the IRS's position is that land doesn't wear out; only the structures on it do. You split your purchase price between land and building (county assessor ratios, an appraisal, or the purchase contract allocation all work as support) and depreciate only the building portion. Aggressive land allocations get challenged; defensible ones get documented.

What is the mid-month convention?

Real property is treated as placed in service at the middle of the month you actually placed it in service, regardless of the day. Buy a rental that goes live on September 3rd or September 28th; either way you get 3.5 months of depreciation in year one. The calculator applies this to your first-year figure.

Do I have to take depreciation on my rental?

Effectively yes; this is the "allowed or allowable" trap. When you sell, the IRS computes depreciation recapture on the depreciation you were entitled to take, whether or not you actually took it. Skipping depreciation gets you the worst of both worlds: no deduction now, full recapture later. If you've missed years, a Form 3115 catch-up can usually claim them all at once.

What happens to the depreciation when I sell?

It comes back as "unrecaptured Section 1250 gain," taxed at up to 25%, separate from the regular capital gains brackets. Ten years of $11,600 deductions is $116,000 of accumulated depreciation and up to $29,000 of recapture tax at sale. Deferral tools like the 1031 exchange postpone recapture along with the rest of the gain.

Can I depreciate faster than 27.5 years?

The building shell, no. But a cost segregation study can reclassify 20-35% of a typical property into 5-, 7-, and 15-year components (flooring, appliances, site improvements), which currently qualify for 100% bonus depreciation. That converts decades of slow deductions into a large year-one deduction, which is the engine behind most real estate tax strategies worth discussing.

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