When you buy a rental property, the IRS lets you treat the building as a wearing-out asset. Even though your tenant pays you rent every month, you can deduct a portion of what the building cost against that rental income — year after year — without writing a single check. That deduction is depreciation, and for most US landlords it is the single largest paper expense on Schedule E.
This rental depreciation calculator estimates your annual straight-line deduction, the accumulated depreciation you have taken so far, your remaining adjusted cost basis, and the tax shield each year in dollars. It uses the IRS MACRS straight-line method: 27.5 years for residential rental property and 39 years for non-residential (commercial) property.
How to Use
- Enter the Property Purchase Price — the total amount you paid to acquire the rental, including closing costs that must be capitalized.
- Enter the Land Value — the portion of the purchase price that is attributable to land. Land never wears out, so the IRS does not let you depreciate it. A common rule of thumb is 15–25% of the total price, but the number on your closing statement or a county assessor's split is more accurate.
- Choose the Recovery Period. Pick 27.5 years for residential rentals you rent to tenants on a 12-month lease. Pick 39 years for offices, retail, warehouses, or any property not used as a dwelling.
- Enter Years Placed in Service — the number of full tax years the property has been available for rent. The calculator uses this to roll forward your accumulated depreciation and remaining basis.
- Optionally set your Marginal Tax Rate (federal plus state). This converts the annual depreciation deduction into real tax savings — the depreciation tax shield.
The result card shows the depreciable building basis, the annual deduction, the monthly equivalent, accumulated depreciation to date, your remaining adjusted cost basis, and the estimated annual tax savings.
The Depreciation Formula
Residential rental property is depreciated using the straight-line method over 27.5 years (GDS under MACRS):
Annual Depreciation = (Purchase Price − Land Value) ÷ 27.5
Where:
- Purchase Price − Land Value is the depreciable building basis.
- 27.5 is the IRS recovery period for residential rental property placed in service after 1986.
- For non-residential property, replace 27.5 with 39.
Worked example on a $400,000 property with $100,000 allocated to land: the building basis is $300,000. Divided by 27.5, that is $10,909.09 per year, or about $909.09 per month. After five full years, accumulated depreciation is $54,545.45, and your adjusted basis drops to $245,454.55. After ten years, accumulated depreciation is $109,090.91 and the adjusted basis is $190,909.09.
At a 24% marginal tax rate, that $10,909.09 deduction saves you roughly $2,618 per year in tax — cash that you can reinvest, even though the depreciation itself is a non-cash expense.
Land vs Building: Why the Split Matters
The IRS is explicit: land is not depreciable because it does not wear out. If you buy a $400,000 rental and allocate the entire price to the building, you will overstate depreciation and invite an IRS adjustment. A defensible split comes from:
- The closing statement's allocation between land and improvements.
- Your county assessor's ratio, which typically lists a land value and an improvement value.
- A professional appraisal that breaks the site value out separately.
If you do not have a formal split, 15–25% for land is a reasonable starting point for suburban single-family rentals, but document whatever method you use. A conservative land allocation (say 20%) on a $400,000 home gives an $80,000 land value and a $320,000 building basis — producing a slightly smaller deduction than the 25% split used in the example above.
Bonus Depreciation and Cost Segregation
The 27.5-year straight-line default is the simple, safe method — but it is not the only option. Cost segregation studies reclassify parts of your property (carpeting, appliances, parking lots, fencing, landscaping) into shorter 5-, 7-, or 15-year recovery classes, front-loading larger depreciation deductions in the early years. Combined with bonus depreciation (which phases down through 2026), this can turn a cash-flow-positive rental into a paper loss for the first several years.
This calculator models the plain 27.5/39-year straight-line method because that is what the vast majority of small landlords use on Schedule E. If you pursue cost segregation, a specialized CPA should model the accelerated schedule — the numbers here will understate your early deductions.
Examples
Example 1 — Standard residential rental. An investor buys a duplex for $400,000, the county assessor allocates $100,000 to land, and the property has been rented for five full years. The building basis is $300,000; annual depreciation is $10,909.09; accumulated depreciation is $54,545.45; adjusted basis is $245,454.55. At a 24% tax bracket, the deduction saves about $2,618 per year.
Example 2 — Ten-year hold. Same $400,000 property, but the owner has held it for ten years. Accumulated depreciation grows to $109,090.91, and the adjusted cost basis falls to $190,909.09. When the owner sells, this accumulated depreciation will be recaptured at a 25% rate under Section 1250 — roughly $27,273 of tax — so the paper deduction along the way is not free.
Example 3 — High-value rental. A buyer closes on a $2,000,000 apartment building with $500,000 of land. The building basis is $1,500,000; annual depreciation over 27.5 years is $54,545.45. After five years, accumulated depreciation is $272,727.27 and the adjusted basis is $1,227,272.73. At a 37% top federal bracket, the annual tax shield exceeds $20,000.
Example 4 — Commercial (39-year). A small-business owner buys a $500,000 shop, allocates $100,000 to land, and depreciates over 39 years. Annual depreciation is $400,000 ÷ 39 = $10,256.41. After seven years, accumulated depreciation is $71,794.87 and the adjusted basis is $328,205.13.
FAQ
How do I calculate rental property depreciation?
Subtract the land value from your purchase price to get the depreciable building basis, then divide by the recovery period — 27.5 years for residential rentals and 39 years for commercial property. For example, a $400,000 home with $100,000 of land has a $300,000 building basis; $300,000 ÷ 27.5 = $10,909 per year of depreciation.
What is the 27.5-year rule?
Under the Modified Accelerated Cost Recovery System (MACRS), residential rental property placed in service after 1986 is depreciated straight-line over 27.5 years. This is the default recovery period for single-family homes, condos, and multi-unit dwellings rented on a 12-month lease. Non-residential property (offices, retail, warehouses) uses 39 years.
Can I depreciate land?
No. Land is not a depreciable asset because it does not wear out, become obsolete, or get used up. You must split your purchase price between land and buildings, and only the building portion is depreciated. A reasonable split is supported by the closing statement, county assessor records, or an appraisal.
What happens to depreciation when I sell?
The depreciation you took (or could have taken) is "recaptured" at sale. Under Section 1250, accumulated depreciation on residential real estate is generally taxed at a maximum 25% rate, regardless of your ordinary bracket. That is why depreciation is a deferral, not a permanent tax cut — but the deferral itself is valuable because it lets you invest the tax savings for years.
Does depreciation help if my rental already shows a loss?
Depreciation is one of the largest expenses on Schedule E, and it often pushes a positively cash-flowing rental into a paper loss. Up to $25,000 of that passive loss can offset ordinary income if your modified adjusted gross income is under $100,000; the allowance phases out between $100,000 and $150,000.
Should I use bonus depreciation or cost segregation?
Cost segregation accelerates deductions by reclassifying non-structural components into 5-, 7-, or 15-year property. It is most valuable on properties over about $500,000, where the engineering study cost is justified by the larger upfront deduction. This calculator models only the standard 27.5/39-year straight-line method.
Disclaimer
This rental property depreciation calculator is provided for informational purposes only and does not constitute tax, legal, or investment advice. Depreciation rules under IRS Publication 527, MACRS conventions, bonus depreciation, and Section 1250 recapture are complex and depend on your exact closing costs, placed-in-service date, land allocation, and tax situation. The mid-month convention (which this simplified calculator ignores) slightly changes the first- and last-year deduction. Always confirm your depreciation schedule and recapture exposure with a qualified CPA or tax professional before filing.