Rental Property Depreciation Calculator
Calculate your annual rental property depreciation tax deduction.
Residential properties depreciate over 27.5 years (excluding land value).
The IRS allows rental property owners to deduct the cost of the building (not the land) as a depreciation expense each year — even while the property may be appreciating in value. This is one of the most powerful tax advantages in real estate investing.
Formula (Straight-Line Depreciation): Annual Depreciation = Depreciable Basis ÷ Recovery Period
Depreciable Basis: Depreciable Basis = Purchase Price + Closing Costs + Improvements − Land Value
Recovery Periods (IRS):
- Residential rental property: 27.5 years
- Commercial rental property: 39 years
- Personal property (appliances, fixtures): 5 years
- Land improvements (landscaping, fences): 15 years
What each variable means:
- Purchase Price — what you paid for the entire property.
- Land Value — land cannot be depreciated; subtract it from the purchase price. Use property tax assessment’s land-to-improvement ratio as a guide.
- Closing Costs — title, attorney, appraisal, inspection fees — these add to your basis.
- Improvements — capital improvements (new roof, HVAC, addition) add to basis; repairs and maintenance do not.
Worked example: Property purchased for $320,000. Closing costs: $6,000. Land value: $60,000.
Depreciable Basis = $320,000 + $6,000 − $60,000 = $266,000 Annual Depreciation = $266,000 ÷ 27.5 = $9,672.73/year
This reduces your taxable rental income by $9,672 annually — saving ~$2,904/year if you’re in the 30% combined bracket.
Depreciation recapture: When you sell the property, the IRS taxes the depreciation you claimed at up to 25% (unrecaptured Section 1250 gain) — plan accordingly or use a 1031 exchange to defer.