Rental Property Depreciation Calculator
Rental property depreciation lets you deduct the cost of the building — not the land — over 27.5 years using straight-line depreciation, as required by IRS Publication 527. This deduction reduces your taxable rental income each year without any out-of-pocket cost, making it one of the most valuable tax advantages of owning residential rental property. Use the calculator above to model your property's cash flow, then read on to understand how the depreciation deduction layers on top.
How it's calculated
The IRS requires residential rental property to be depreciated over 27.5 years using straight-line depreciation (equal deductions each year). The depreciable basis is the purchase price plus acquisition costs minus the value allocated to land. Land is never depreciable — only the structure qualifies.
Formula: Depreciable basis = (Purchase price + closing costs) × (1 − land value percentage). Annual depreciation = Depreciable basis ÷ 27.5.
Example: a $300,000 property where land is 20% of value. Depreciable basis = $300,000 × 0.80 = $240,000. Annual depreciation deduction = $240,000 ÷ 27.5 = $8,727. That $8,727 deduction reduces your Schedule E taxable income each year for 27.5 years. The land-to-structure split is typically found in the county property tax assessment or a professional appraisal. IRS guidance allows you to use the assessed value ratio if a separate land appraisal is unavailable.
A worked example
A $300,000 rental property with 3% closing costs has a total cost basis of $309,000. The county assessment shows land at 20% of total value, so land value = $61,800 and the depreciable structure = $247,200. Annual depreciation = $247,200 ÷ 27.5 = $8,989. For an investor in the 24% marginal income tax bracket, this deduction saves approximately $2,157 in federal income tax per year — real cash savings with no out-of-pocket cost. Over the full 27.5-year depreciation schedule, total deductions equal $247,200. At sale, the IRS taxes all accumulated depreciation at a 25% recapture rate under Section 1250, not at the standard long-term capital gains rate. A 1031 exchange defers both the capital gains tax and the depreciation recapture into the replacement property.
Common mistakes to avoid
- Depreciating the land value. The IRS explicitly prohibits depreciating land — only the structure (building) qualifies. Failing to separate land from structure in your basis calculation is an audit risk.
- Starting depreciation before the property is placed in service. Depreciation begins the day the property is available for rent, not the purchase date. If you buy in October but spend two months renovating, depreciation starts in December.
- Forgetting to add closing costs to the depreciable basis. Acquisition costs like title insurance, legal fees, and recording charges increase the cost basis and therefore increase the annual deduction.
- Ignoring depreciation at sale. Many investors claim the deduction during ownership but are caught off guard by depreciation recapture tax at sale, which is a mandatory 25% rate on all accumulated depreciation under IRS Section 1250.
- Failing to claim depreciation assuming it saves tax at sale. The IRS taxes depreciation recapture on amounts 'allowed or allowable' — even if you never actually claimed the deduction, you will owe recapture tax when you sell. Always take the deduction.
Frequently asked questions
How is rental property depreciation calculated?
Rental property depreciation uses IRS straight-line depreciation over 27.5 years. Divide the depreciable basis (purchase price plus closing costs, minus land value) by 27.5 to find the annual deduction. For a $240,000 depreciable basis, the annual deduction is $8,727.
Can I depreciate the land my rental property sits on?
No. The IRS explicitly prohibits depreciating land — only the building structure qualifies. You must separate the land value from the total purchase price to calculate your depreciable basis. Use the county property tax assessment ratio or a professional appraisal to make the split.
What is depreciation recapture and when does it apply?
Depreciation recapture applies when you sell a rental property. The IRS recaptures all depreciation you deducted (or were allowed to deduct) during ownership and taxes that amount at a special 25% rate under Section 1250 — higher than the 0%, 15%, or 20% long-term capital gains rate that applies to the remaining profit. A 1031 like-kind exchange defers recapture into the replacement property.
What if I never claimed depreciation on my rental?
You still owe recapture tax at sale. The IRS taxes depreciation that was 'allowed or allowable,' meaning the amount you could have deducted whether or not you actually did. Failing to claim depreciation during ownership means you paid more tax than necessary each year and will still owe recapture at sale. Always take the depreciation deduction.
Does depreciation reduce my taxable rental income every year?
Yes. Depreciation is a non-cash deduction that reduces your Schedule E taxable rental income each year for 27.5 years. For a property with an $8,727 annual depreciation deduction and an investor in the 24% bracket, that saves approximately $2,094 in federal taxes per year — with no money leaving your pocket.