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Rental property depreciation lets you deduct the cost of a residential rental building over 27.5 years, even while the property gains value. Take the building’s value, leave the land out, and divide by 27.5. That is your deduction each year. On a home with a $240,000 building value, it comes to $8,727 a year, worth about $2,100 in federal tax savings at the 24 percent bracket, and it never costs you a dollar out of pocket.
Depreciation is usually the largest deduction a rental investor has, and the one most often set up wrong. This guide covers the calculation, the forms, the depreciation schedule that keeps it all straight, and the bonus depreciation rules that changed in 2025. For everything beyond depreciation, start with our complete guide to rental income taxes.
What Is Rental Property Depreciation?
Depreciation is an IRS deduction that spreads the cost of buying and improving a rental property across its useful life, which IRS Publication 527 sets at 27.5 years for residential buildings. The logic is simple. Buildings wear out. Roofs age, systems fail, finishes go out of date, and the tax code lets you deduct that slow loss every year you own the property, whatever the market is doing.
Two things make the deduction unusual. It costs you nothing each year, since you already paid when you bought the property. And it is effectively mandatory, because the IRS assumes you took it whether you did or not (more on that in the section on selling).
Here is what it does to a tax bill. Say a rental brings in $20,000 a year and your depreciation deduction is $8,727. Before counting a single operating expense, you already pay tax on $11,273 instead of $20,000. Stack repairs, insurance, and management fees on top, and many profitable rentals show little or no taxable income at all. That combination is the core of the tax benefits of rental properties.
How Long Do You Depreciate a Rental Property?
A residential rental building depreciates over 27.5 years and a commercial building over 39, both under the IRS system called MACRS (the Modified Accelerated Cost Recovery System). Most of what sits inside or around the building moves much faster:
| Asset | Recovery period |
|---|---|
| Residential rental building | 27.5 years |
| Commercial building | 39 years |
| Appliances, carpet, furniture | 5 years |
| Fences, driveways, landscaping | 15 years |
| Land | Never depreciates |
The clock starts when the property is placed in service, meaning ready and available to rent. List a rent-ready home in March and sign your first lease in June, and depreciation still starts in March. Buildings also follow a mid-month convention: whichever day you place the property in service, the math treats it as the middle of that month, so your first year is prorated.
Those five-year assets are where investors leave the most money behind. A $1,200 refrigerator deducted over five years, or written off at once with bonus depreciation, beats burying it in a 27.5-year schedule. Our guide to rental property appliance depreciation covers those rules in detail.
How to Calculate Depreciation on a Rental Property
Three numbers produce your annual deduction: what you paid, what the land is worth, and 27.5.
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Find your cost basis. Start with the purchase price and add most closing costs, including title fees, recording fees, legal fees, transfer taxes, and surveys. Add any improvements you made before renting the property out.
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Subtract the land value. Land never depreciates, so pull the land-to-building ratio from your property tax assessment or a professional appraisal and remove the land’s share.
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Divide the rest by 27.5. The result is your deduction for every full year the property stays in service.
Worked through on a real purchase:
| Step | Amount |
|---|---|
| Purchase price plus closing costs | $300,000 |
| Building share (80 percent per tax assessment) | $240,000 |
| Annual depreciation ($240,000 ÷ 27.5) | $8,727 |
One special case: if you convert your own home into a rental, your depreciable basis is the lesser of its fair market value on the conversion date or your adjusted basis, per Publication 527. Getting this wrong overstates every year’s deduction.
Improvements you make later, like an addition or a new roof, each start a fresh 27.5-year schedule from their own placed-in-service date. IRS Publication 946 has the full tables if you want to check the math yourself.
How Do You Claim Depreciation on Your Tax Return?
Depreciation goes on Schedule E, line 18, alongside your rental income and operating expenses. In the first year a property or improvement goes into service, you also file Form 4562 to establish the asset, its basis, and its recovery period.
The paperwork worth guarding: your settlement statement, the assessment or appraisal behind your land allocation, and receipts for every improvement. An accountant can reconstruct a lot from bank records. A defensible land allocation, years after the fact, is much harder.
What Is a Depreciation Schedule for Rental Property?
A depreciation schedule is the running record of every asset you are depreciating: what it cost, when it went into service, its recovery period and method, and how much depreciation you have claimed to date. Your tax preparer builds it the first year you file Schedule E, and every return after that depends on it being right.
For each asset, the schedule shows:
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A description and the date placed in service
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Cost basis, with land broken out for the building itself
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Recovery period and depreciation method
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Depreciation claimed this year and accumulated over time
The schedule earns its keep at three moments. At filing, it produces the correct deduction. In an audit it is your evidence, and at sale it supplies the accumulated total for the recapture calculation covered below. If you ever change accountants, ask the old one for the schedule before you go. It is yours.
Update it whenever a renovation, appliance, or land improvement goes in.
What Are the Bonus Depreciation and Section 179 Rules Now?
Bonus depreciation is back to 100 percent, permanently, for qualifying property acquired after January 19, 2025. The One Big Beautiful Bill Act restored the full first-year write-off in July 2025, and the IRS confirmed the details in follow-up guidance. Property acquired on or before that date stays on the older phase-down schedule: 40 percent if placed in service in 2025, 20 percent in 2026.
Two limits matter before you plan around it:
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Bonus depreciation only covers property with a recovery period of 20 years or less. Appliances, carpet, furniture, fences, driveways, and cost segregation components all qualify. The building itself never does, and neither does a new roof on a residential rental, since both sit on the 27.5-year schedule.
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Several states do not follow the federal rules and require you to add the deduction back on your state return. Ask your tax professional how your state handles it before you count the savings.
Section 179, the other immediate write-off, matters less for residential investors than it sounds. The 2026 limit is $2,560,000, phasing out once purchases pass $4,090,000, per Rev. Proc. 2025-32. It never applies to the building. It can cover appliances and furniture in a rental, but only when your rental activity operates as a genuine trade or business, and the deduction cannot exceed your business income for the year. With 100 percent bonus depreciation available without those strings, most investors simply use bonus.
How Can You Maximize Your Depreciation Deductions?
Four moves capture money that standard straight-line depreciation leaves on the table:
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Order a cost segregation study on higher-value properties. An engineer separates the building into components that qualify for 5, 7, and 15-year schedules instead of 27.5. Paired with 100 percent bonus depreciation, a study can turn years of future deductions into one large first-year deduction. Ask your CPA to model whether the study fee pays for itself on your property.
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Fight for an accurate land allocation. Every dollar assigned to land is a deduction you never get. If the assessment ratio looks off for your market, an appraisal that supports a higher building share is worth the cost.
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Capitalize every improvement. New flooring, a renovated kitchen, a fence: each one adds depreciable basis. Improvements missing from your schedule are deductions missing from your returns.
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Claim partial dispositions. When you replace a roof or major system, you can write off the remaining undepreciated basis of the old one in that year. It is one of the most commonly missed deductions in rental accounting.
One caution before you model a large first-year deduction. The IRS treats most rental losses as passive, and passive losses generally cannot offset W-2 wages or other non-passive income. Anything you cannot use this year gets suspended on Form 8582 and carried forward, waiting for future passive income or the sale of the property. Real estate professionals who materially participate in their rentals are the main exception. Before you count on a cost segregation write-off against your salary, read the passive activity rules in IRS Publication 925 or ask your tax professional how much of the deduction you can actually use.
Improvements vs. Repairs: Which Gets Depreciated?
Repairs are deducted in full in the year you pay for them, while improvements are capitalized and depreciated over time. The dividing line is what the work accomplishes. Fixing a leak, patching drywall, and repainting keep the property in its existing condition, so they count as repairs. A room addition, a full renovation, or a new roof makes the property better or extends its life, so those are improvements.
Small purchases get a shortcut. Under the IRS de minimis safe harbor, items costing $2,500 or less per invoice can be expensed immediately instead of depreciated, which spares your schedule from tracking every ceiling fan. For the full list of what you can write off in the current year, see our guide to rental property tax deductions.
What Happens to Depreciation When You Sell?
The IRS collects at sale. Accumulated depreciation is taxed at a rate of up to 25 percent as unrecaptured section 1250 gain, reported on Form 4797, separate from the capital gains tax on your appreciation. Sell after ten years of $8,727 deductions and you have roughly $87,270 of accumulated depreciation, which means up to about $21,800 in recapture tax.
Recapture is based on the depreciation you were allowed to take, even if you never claimed it. Skipping the deduction saves you nothing at sale, so claim it every year and keep the schedule current.
If you want to keep the money working, a 1031 exchange defers both recapture and capital gains by rolling the proceeds into another investment property. The IRS explains the mechanics in its like-kind exchange rules, and our 1031 exchange webinar walks through how investors use them in practice.
Depreciation on the building is only part of the schedule. Appliances and equipment recover on a faster clock, covered in our guide to rental property appliance depreciation, and our complete guide to rental income taxes shows where depreciation fits in the bigger tax picture.
FAQ
When does rental property depreciation start?
The day the property is placed in service, which the IRS defines as ready and available to rent. Once the unit is habitable and listed, depreciation runs even while you wait for your first resident to sign.
Can you depreciate land?
No. Land does not wear out, so the IRS excludes it entirely. That is why the land-versus-building allocation deserves attention: it permanently sets how much of your purchase price you can ever deduct.
What happens if I forgot to claim depreciation in past years?
You can usually catch up. A single missed year can be fixed with an amended return. For two or more, Form 3115 lets you claim all the missed depreciation as one deduction in the current year. Handle it before you sell, because recapture applies to the depreciation you were entitled to either way.
Do I still depreciate a property that is going up in value?
Yes. Depreciation follows the IRS schedule regardless of market prices. Appreciation affects your eventual sale price and capital gains, but it has no effect on the deduction you claim each year.
This article is general information, not legal advice. Laws change, and every situation is different. For guidance on a specific situation, talk to a licensed tax professional.
