Rental Property Depreciation Calculator
Basis & timing
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- United States — state and local practice
- Scope and limitations
- Educational estimate only. U.S. real estate costs are local: property tax rates, transfer and recording taxes, title practice, who customarily pays which closing cost, and landlord-tenant rules all change by state and often by county or city. Agent commission is negotiable and, since the 2024 NAR settlement, buyer-agent compensation is negotiated separately rather than assumed. Only a lender's Loan Estimate, a title company's fee sheet or a signed contract binds a number.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the purchase price, and set what share of it is land — the county assessor's split is the most defensible source.
- 02
Enter the month you placed the property in service. The IRS mid-month convention makes the first year shorter than a full one.
- 03
Enter your marginal tax rate, which is what turns the deduction into money.
- 04
Open Advanced options to add closing costs and improvements that were capitalized into the basis.
- 05
Read the annual deduction and the tax it saves, then the schedule — and note the insight about recapture, because this deduction is a loan.
Formula
The total basis is the purchase price plus capitalized closing costs plus improvements. The depreciable basis is that total reduced by the land share, because land does not wear out — which is why the land percentage keeps its default rather than opening blank; a zero land share silently depreciates the dirt. A full year's deduction is the depreciable basis divided by the recovery period, 27.5 years for residential rental. The first year is shortened by the mid-month convention: the fraction is 12.5 minus the month placed in service, over 12, so January gives 11.5 months and December half a month. Later years take the full amount until the running total reaches the depreciable basis, and the final stub year takes only the remainder. Tax saved is the deduction times your marginal rate.
Example
A $265,000 purchase with $6,000 of capitalized closing costs and $15,000 of improvements, 20% land, placed in service in June, at a 24% marginal rate. Step 1 — Total basis: $265,000 + $6,000 + $15,000 = $286,000. Step 2 — Depreciable basis: $286,000 x 80% = $228,800. The $57,200 of land never depreciates. Step 3 — A full year: $228,800 / 27.5 = $8,320. Step 4 — Year one, mid-month: placed in service in June gives (12.5 − 6) / 12 = 6.5 months, so $228,800 x 6.5 / 12 / 27.5 = $4,507. Step 5 — Tax saved: $8,320 x 24% = $1,997 a year in a full year. After five years the accumulated depreciation is $37,787 and the adjusted basis has fallen to $248,213. That has saved about $9,069 of tax along the way — and created a $37,787 recapture liability at up to 25% when you sell. The deduction is real and it is worth taking, but it is deferral, not forgiveness, and a plan that spends the tax saving without reserving for the recapture is a plan with a surprise in it.
Definitions
- Depreciation
- An annual deduction recovering the cost of an income-producing building over its recovery period.
- Recovery period
- 27.5 years for US residential rental property, 39 for commercial. Straight line under MACRS.
- Depreciable basis
- The total basis less the land share. Only the building depreciates.
- Land allocation
- The share of the purchase price attributed to land. Best taken from the county assessor's ratio.
- Mid-month convention
- The IRS rule treating a property as placed in service mid-month, which shortens the first and last years.
- Placed in service
- The date the property was ready and available to rent — not necessarily the closing date.
- Adjusted basis
- Original basis plus improvements minus accumulated depreciation. What the gain is measured against at sale.
- Capitalized cost
- A cost added to basis and depreciated, rather than deducted in the year paid.
- Cost segregation
- A study reclassifying components to shorter recovery periods, accelerating deductions.
- Allowed or allowable
- The rule that recapture applies to depreciation you could have taken, whether or not you claimed it.
- Passive activity loss
- Rental losses whose deductibility against ordinary income is limited by income thresholds.
- Section 1250 recapture
- Tax at up to 25% on accumulated depreciation when the property is sold.
Good to know
A deduction for money you did not spend
Depreciation is the most valuable and least understood benefit of owning a rental. The IRS treats a residential building as wearing out over 27.5 years and lets you deduct a share of its cost every year — $8,320 here — against rental income, without spending anything. At a 24% marginal rate that is about $1,997 of tax saved annually, which on a property producing thin cash flow is frequently worth more than the cash flow itself. The deduction is not optional in any meaningful sense: you may skip claiming it, but the IRS calculates gain at sale as though you had taken it, so failing to claim converts a benefit into a liability. Commercial property runs 39 years instead of 27.5, and the land under any building is never depreciable, because land does not wear out.
Separating land from building is where the money is
Only the improvements depreciate, so the first step is splitting the basis. A 20% land allocation on a $286,000 basis leaves $228,800 to depreciate. Push land to 30% and the annual deduction falls by more than $1,000; push it to 15% and it rises. The allocation must be reasonable and supportable, and the two accepted sources are the county assessor's split between land and improvement value — which appears on the tax bill and is the most commonly used — and a formal appraisal, which sometimes supports a lower land share. Urban lots and high-cost coastal land routinely run 30% to 50%, while land in lower-cost markets is often under 20%. It is worth getting right at purchase, because the allocation carries for the whole holding period and changing it later means amending returns.
The mid-month convention costs you most of the first year
Residential rental property uses MACRS with a mid-month convention, which treats the property as placed in service in the middle of whatever month it actually was. Placing it in service in June gives 6.5 months of the first year rather than seven, so the first-year deduction is $4,507 against a full-year $8,320 — about 54%. The consequence is that the schedule runs 28 calendar years for a 27.5-year life, with a partial year at each end. Placed in service means available for rent, not occupied: a property advertised and ready in December starts depreciating in December even if the first tenant arrives in February. That distinction is worth a full month of deduction and is frequently missed. Improvements made later start their own schedules from their own in-service dates rather than joining the original one.
What raises the basis, and what does not
The depreciable basis is the purchase price plus capitalized closing costs plus capital improvements, less the land. Closing costs that capitalize include title fees, recording, surveys, transfer taxes and legal fees — but not prepaid interest, prepaid insurance or property tax proration, which are deducted currently instead. Capital improvements are additions and betterments with a useful life beyond a year: a new roof, an HVAC replacement, a kitchen renovation, a fence. Repairs are deducted immediately: patching, painting, fixing a leak, replacing a broken window. The line is genuinely blurry, and the safe-harbour rules for small taxpayers and de minimis amounts exist precisely to keep small items out of the argument. A cost segregation study can accelerate part of the basis into 5, 7 and 15-year schedules — worth the fee on larger properties and generally not on a single-family rental at this price.
The bill comes due at sale
Depreciation is a deferral rather than a forgiveness. Every dollar deducted reduces your adjusted basis — $37,787 taken over five years takes the basis from $286,000 to $248,213 — and at sale that reduction turns into a larger gain, taxed as unrecaptured section 1250 gain at a rate capped at 25%. Whether that is a good trade depends on the arithmetic: deducting at a 24% or 32% marginal rate now and paying back at up to 25% later is usually favourable, and the time value of the deferral makes it more so. Two things can improve it further. A 1031 exchange rolls the whole liability into the replacement property indefinitely. And a step-up in basis at death eliminates it entirely for the heirs. The Depreciation Recapture Calculator prices what happens if neither applies and you simply sell.
Frequently asked questions
How long is residential rental depreciated over?
27.5 years, straight line, under the modified accelerated cost recovery system. Commercial property is 39 years. The 27.5-year figure has been fixed since 1993 and is not adjusted for anything.
Why is land excluded?
Because depreciation is for assets that wear out, and land does not. Depreciating the land portion is the single most common error on a rental return, and it is the one an examiner finds first because the allocation is on the closing statement.
How do I work out the land share?
The most defensible method is the county assessor's ratio of land to improvement value, applied to your purchase price. It is written down by someone other than you, which is exactly what makes it hold up. An appraisal works too. A round number you chose does not.
What is the mid-month convention?
The IRS treats a property as placed in service in the middle of whichever month it actually was, regardless of the day. Buy in January and you get 11.5 months of depreciation in year one; buy in December and you get half a month. It is why a December closing is a poor tax move.
What is included in the basis?
The purchase price, plus most closing costs that are capitalized rather than deducted — title fees, recording, legal, survey — plus any improvements you make. Not the loan costs, which are amortized separately, and not repairs, which are deducted in the year they are paid.
What is the difference between a repair and an improvement?
A repair keeps the property in working order and is deducted immediately; an improvement betters it, restores it or adapts it and must be capitalized and depreciated. Replacing a broken window is a repair; replacing every window is an improvement.
Do I have to take depreciation?
Practically, yes. The IRS recaptures depreciation "allowed or allowable" when you sell, meaning you are taxed on what you could have deducted whether or not you claimed it. Skipping it does not avoid the tax — it just means paying for the deduction without receiving it.
What is cost segregation?
An engineering study that separates components with shorter lives — appliances, carpet, landscaping, some electrical — so they depreciate over 5, 7 or 15 years instead of 27.5. It accelerates deductions substantially and costs a few thousand dollars, so it pays on larger properties.
Can depreciation create a loss I can deduct?
Often it creates a paper loss, but passive activity rules limit what you can use. Most investors can deduct up to $25,000 of rental losses against ordinary income, phasing out between $100,000 and $150,000 of adjusted gross income. Real estate professionals are treated differently.
Does depreciation affect cash flow?
Not directly — no money leaves your account. It reduces taxable income, so it reduces the tax you pay, and that is real. It is why a rental can show a tax loss while depositing money in your account every month.
What happens when I sell?
Everything depreciated is recaptured as unrecaptured section 1250 gain, taxed at up to 25%. The Depreciation Recapture Calculator works it out. Think of the deduction as an interest-free loan from the IRS rather than a gift.
Does this replace a tax professional?
No. Basis allocation, capitalization rules, passive loss limits and cost segregation all have real complexity and real consequences. This gives you the arithmetic and the shape; a CPA gives you the return.