How the rental property depreciation calculator works
Depreciation recovers the cost of a rental building over the period the tax code assigns to it. Residential rental property, a building where at least 80% of the rent comes from dwelling units, is recovered over 27.5 years; nonresidential real property such as an office or a store over 39 years. Both use the straight-line method and the mid-month convention: whatever day the property is ready and available to rent, it counts as placed in service in the middle of that month.
- B
- Depreciable basis of the building: purchase price plus capitalized closing costs, less the land
- P, C
- Purchase price and the closing costs that belong in basis
- p_{y,m}
- The percentage in IRS Publication 946 Table A-6 (27.5 years) or A-7a (39 years) for recovery year y and month m placed in service
- D_y
- Depreciation for year y, rounded to the cent
The calculator uses the IRS percentage tables, the same ones tax software uses, because once you start with a table you stay with it for the whole recovery period. A full year on residential property is 3.636% of the basis, which is 1 ÷ 27.5 rounded to three decimals. The first year is smaller because only part of it counts: placed in service in June, the first year is 1.97%, six and a half months of the twelve. The table alternates 3.636% and 3.637% in later years so that each column adds up to exactly 100%, and the calculator lets the last year take whatever basis is left, so the deductions add up to the basis to the cent.
In the year you sell, the deduction is the table percentage for that year times the months before the month of sale plus half of that month, divided by 12. Property placed in service and sold in the same year gets no depreciation at all.
Worked example: a $350,000 rental house
An investor buys a rental house for $350,000 and pays $7,000 of title, recording and transfer costs. The county assessment puts 20% of the value in the land, so the building's basis is $285,600.00 and $71,400.00 is never depreciated. The house is ready to rent in June 2022.
| Year | Table percentage | Depreciation | Accumulated |
|---|---|---|---|
| 2022 | 1.97% | $5,626.32 | $5,626.32 |
| 2023 | 3.636% | $10,384.42 | $16,010.74 |
| 2024 | 3.636% | $10,384.42 | $26,395.16 |
| 2025 | 3.636% | $10,384.42 | $36,779.58 |
| 2026 | 3.636% | $10,384.42 | $47,164.00 |
The first year is $5,626.32, and every full year after that is about $10,384.42. By the end of 2026 the owner has deducted $47,164.00, and the building is fully depreciated in 2049, the 28th calendar year of the schedule.
Three changes show what moves the numbers. If the assessment put 30% in the land instead, the basis would fall to $249,900.00 and a full year to $9,086.36. A new $18,000 roof placed in service in September 2025 starts its own 27.5-year schedule: $190.98 in 2025 and $654.48 in 2026, so the 2026 deduction becomes $11,038.90. And if the same building were an office, the 39-year table would allow $7,322.78 a year instead.
If the owner sells in April 2030, that year's deduction covers three and a half months, $3,028.79, and the total depreciation taken is $81,346.05. That total is what gets taxed as depreciation recapture on the sale.
Land, closing costs and what goes in the basis
Land isn't depreciated, so the split between land and building decides how much you can deduct. The IRS asks you to divide the cost by the fair market values of each at the time you buy. If you aren't sure of them, Publication 527 lets you use the ratio in your real estate tax assessment: if the assessor values the land at $24,000 of a $160,000 total, 15% of your cost goes to the land. Enter that share as a percentage, or enter the land's dollar value as part of the price and the calculator works out the share.
Settlement costs for buying the property go in the basis too: abstract fees, charges for installing utilities, legal and recording fees, surveys, transfer taxes, title insurance, and amounts the seller owed that you agreed to pay. Costs of getting the loan don't, such as points, appraisal fees the lender required and credit reports, and neither do insurance premiums or amounts placed in escrow.
Appliances, carpets and furniture in a rental are 5-year property, and fences and shrubbery are 15-year property, each with its own method. This calculator covers the building and improvements to it, which share the building's 27.5- or 39-year period. Structural components such as furnaces and water pipes are part of the building.
Improvements, repairs and the sale
An improvement to a rental, such as an addition, a new roof or replacement windows, is depreciated as a separate item with the same recovery period the building would have if you placed it in service at the same time. Its schedule starts when the improvement is placed in service, or when the building is, if that's later. An expense is an improvement if it is a betterment, restores the property or adapts it to a new use; ordinary repairs and maintenance can generally be deducted in the year you pay for them instead.
Depreciation lowers your basis whether or not you claim it: Publication 527 says to reduce the basis by the full amount you could have deducted. That reduced basis raises your gain when you sell, and the part of the gain that comes from depreciation is taxed at your ordinary rates, up to 25%. The rental property capital gains tax calculator takes the total from this schedule and works out that tax, and a 1031 exchange into another rental can defer it.
The bottom line
A rental building is deducted over 27.5 years, 39 for commercial property, starting from the middle of the month it is ready to rent. In the example, a $350,000 house with 20% land gives $5,626.32 in the first year and about $10,384.42 in each full year after.
Check the land share on your assessment, add each improvement on its own date, and keep the schedule from the rental property depreciation calculator with your records: you'll need the total when you sell.
Frequently asked questions
How does 27.5-year depreciation work for a rental?
Residential rental buildings are depreciated over 27.5 years with the straight-line method, so a full year's deduction is 3.636% of the building's basis. On the example's $285,600.00 basis that is $10,384.42 a year. 27.5-year depreciation applies to the building and its improvements, not the land.
What is the mid-month convention?
Under the mid-month convention, a building placed in service or sold during any month is treated as placed in service or sold in the middle of that month. So the first year of depreciation counts the months after the month placed in service plus half of that month, and the year of sale counts the months before the sale month plus half of it.
How do I do the land vs. building allocation?
Divide what you paid between land and building by their fair market values when you bought. If you aren't sure of those, the IRS lets you use the ratio from your property tax assessment: if the assessor values the land at 15% of the total, 15% of your cost basis goes to the land. Getting the land vs. building allocation right matters because only the building is depreciated.
What is depreciation recapture?
When you sell a rental at a gain, the part of the gain that comes from the depreciation you took, or could have taken, is taxed at your ordinary income tax rates up to 25% instead of the lower capital gains rates. Depreciation recapture is why the accumulated total from your depreciation schedule matters at sale time.
How do I make a rental property depreciation schedule?
List the building's basis after the land split and the month you placed it in service, then multiply the basis by the IRS table percentage for each year. Add each improvement as its own line with its own date. This calculator builds the rental property depreciation schedule and lets you download it as a CSV for your records.
How do I depreciate improvements to a rental property?
Treat each improvement as a separate asset with the same recovery period as the building, 27.5 years for residential rental property, starting in the month the improvement is placed in service. An expense is an improvement if it is a betterment, restores the property or adapts it to a new use; ordinary repairs and maintenance can generally be deducted in the year you pay for them.
What if I didn't claim depreciation in past years?
You still reduce your basis by the depreciation you could have deducted, so skipping it doesn't avoid the tax when you sell. IRS Publication 527 says you may be able to correct it on an amended return, or else by changing your accounting method; ask a tax professional which applies.
Sources and further reading
- Publication 527, Residential Rental Property (opens in a new tab), Internal Revenue Service
- Publication 946, How To Depreciate Property (opens in a new tab), Internal Revenue Service
- Instructions for Form 4562, Depreciation and Amortization (opens in a new tab), Internal Revenue Service
Related calculators
- Rental Property Capital Gains Tax CalculatorSelling? See the capital gains and depreciation recapture tax on the depreciation you've taken.
- 1031 Exchange CalculatorTrading up instead of selling? See how much gain a 1031 exchange defers and what boot would be taxed.
- Section 121 Exclusion CalculatorLived in it before or after renting it? See how much of the gain the home sale exclusion still covers.