Rental Property Depreciation Calculator
Enter your property's purchase price, land value, and any capital improvements to calculate your annual and monthly depreciation deduction. Residential rental properties are depreciated over 27.5 years using the IRS straight-line method.
Tax notice: Tax calculations shown are simplified estimates for educational purposes. Actual tax liability depends on your individual circumstances, filing status, applicable deductions, and current tax law. This is not tax advice. Consult a CPA or tax professional. Full disclaimer.
What is Rental Property Depreciation?
Depreciation is a tax concept that allows rental property owners to recover the cost of a building over its useful life. Under current IRS guidelines, residential rental property has a useful life of 27.5 years. Each year, a portion of the building's cost may be deductible from taxable rental income — even though the property may actually be appreciating in value. Consult a tax professional to confirm how depreciation applies to your situation. The depreciable basis is the portion of the property eligible for depreciation. Land is generally not depreciable because it does not wear out. The land value is subtracted from the total purchase price to find the building value. Capital improvements (additions, renovations, new systems) may be added to the depreciable basis because they extend the useful life of the property. Depreciation is often described as a "paper loss" — it may reduce taxable income without requiring any additional cash outlay. For example, a property generating $18,000 in net rental income with $8,727 in annual depreciation might show significantly lower taxable income on paper. The actual tax impact depends on your individual circumstances. Consult a tax professional to understand how depreciation affects your specific tax situation. Under current IRS guidelines, residential rental properties are generally depreciated using the straight-line method over 27.5 years — approximately 3.636% per year. Commercial properties typically use a 39-year schedule. Depreciation generally begins when the property is placed in service (rented or available for rent), not when purchased. Tax rules change — consult a CPA to confirm current requirements. When a depreciated rental property is sold, the IRS generally requires "recapture" of the depreciation previously claimed. Under current rules, depreciation recapture may be taxed at rates up to 25%. This means depreciation may defer taxes rather than eliminate them. Strategies such as 1031 like-kind exchanges may allow further deferral. Tax rules are complex and change — consult a qualified tax professional for guidance specific to your situation.
How to Calculate
- Enter the total purchase price of the property
- Enter the land value (from your property tax assessment, appraisal, or closing documents — typically 15–25% of purchase price)
- Enter any capital improvements made after purchase (not routine repairs)
- Review your annual depreciation deduction
- Consult a CPA to determine how to apply this deduction on your tax return
Formula
Depreciable Basis = Purchase Price − Land Value + Capital Improvements Annual Depreciation = Depreciable Basis ÷ 27.5 Monthly Depreciation = Annual Depreciation ÷ 12 Total Depreciation = Depreciable Basis (fully depreciated over 27.5 years) The 27.5-year period is set by the IRS for residential rental property (IRS Publication 946). Land value is typically determined by your county property tax assessment, which often breaks the assessed value into land and improvements. If your assessment does not separate them, a common rule of thumb is that land represents 15–25% of the property's total value, depending on location.
Example Calculation
For a property purchased at $300,000 with a land value of $60,000 and no capital improvements: Depreciable Basis = $300,000 − $60,000 + $0 = $240,000 Annual Depreciation = $240,000 ÷ 27.5 = $8,727.27 Monthly Depreciation = $8,727.27 ÷ 12 = $727.27 Total Depreciation = $240,000 The estimated annual depreciation of $8,727.27 could potentially reduce taxable rental income over the 27.5-year period. The actual tax benefit depends on your tax bracket, filing status, and other factors. Consult a CPA for your specific situation.
Frequently Asked Questions
How do I determine the land value for depreciation?
The most common method is to use your county property tax assessment, which typically separates assessed value into land and improvements. You can also use the ratio from your purchase appraisal. If neither is available, a reasonable estimate is 15–25% of the purchase price for most suburban properties. Land is a higher percentage in expensive coastal markets and a lower percentage in rural areas.
Can I depreciate a property I live in?
No. Depreciation only applies to property used for business or income-producing purposes. Your primary residence is not depreciable. If you convert a personal residence to a rental, you can begin depreciating it from the date it is placed in service as a rental. The depreciable basis is the lesser of your adjusted basis (original cost plus improvements) or the fair market value at the time of conversion.
What happens to depreciation when I sell the property?
When you sell, the IRS generally requires depreciation recapture on the depreciation previously claimed (or that could have been claimed). Under current rules, recaptured depreciation may be taxed at rates up to 25%, while gains above the depreciated basis may be taxed at long-term capital gains rates. Strategies such as 1031 like-kind exchanges may allow tax deferral. Consult a CPA for guidance on your specific situation.
Are repairs the same as capital improvements for depreciation?
Generally, no. Routine repairs and maintenance (fixing a leaky faucet, patching drywall, replacing a broken window) are typically treated as operating expenses in the year they occur. Capital improvements (new roof, HVAC system, kitchen renovation, adding a room) that extend the property's useful life are generally depreciated over time. The IRS uses a 'betterment, restoration, or adaptation' framework to distinguish the two. Consult a CPA to determine how specific expenses should be classified.
What is bonus depreciation for rental property?
Bonus depreciation allows you to deduct a larger percentage of certain property costs in the first year, rather than spreading them over 27.5 years. It applies to personal property (appliances, carpeting, fixtures) and certain improvements, but NOT to the building itself. Under the Tax Cuts and Jobs Act, bonus depreciation is being phased down: 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 unless Congress extends it.
Can I take depreciation if my rental property has a loss?
Potentially, but there are limitations. Depreciation can create or increase a rental loss on paper. Under current tax rules, there may be provisions allowing certain rental losses to offset other income, subject to income thresholds and phase-outs. Unused losses may be carried forward. The rules around passive activity losses are complex — consult a CPA to understand how they apply to your tax situation.