Rental Property Depreciation Calculator

The IRS lets rental property owners deduct the cost of the building, though not the land, as a depreciation expense each year. It applies even while the property is going up in value, which is what makes it one of the strongest tax advantages in real estate.

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

That reduces your taxable rental income by $9,673 a year, worth about $2,902 in a 30% combined bracket.

The first year is not a full year. Residential rental property uses the IRS mid-month convention: whatever day of the month you put the property in service, the IRS treats it as the middle of that month. Place it in service in September and you get 3.5 months of depreciation in year one, not four and not twelve. The calculator works this out once you pick the month, and the missing part is not lost, it comes back on the far end in year 28.

Depreciation is not optional. This is the trap that costs people real money. When you sell, the IRS recaptures depreciation “allowed or allowable”, meaning it taxes you on what you could have claimed whether or not you actually claimed it. Skipping the deduction to keep your paperwork simple does not spare you the recapture, it just means you paid full income tax during the hold and full recapture tax at the end. If you have missed years, Form 3115 exists to catch them up in one go.

Depreciation recapture: on sale, the depreciation you claimed is taxed at up to 25% as unrecaptured Section 1250 gain, separately from and before the normal capital gains rate on the rest. A 1031 exchange defers it into the replacement property.

This page gives you the annual figure and the first year. For the whole recovery period laid out year by year, with a chart of the cumulative deduction, use the property depreciation schedule calculator. It has no box for closing costs, so add them into the purchase price there, and the two pages then agree to the cent.