Rental Property Depreciation Calculator
Calculate your annual rental property depreciation deduction using IRS 27.5-year straight-line rules, including mid-month convention for the first year, optional cost segregation breakdown, full 27.5-year schedule, and estimated annual tax savings — free, private, no signup required.
| Asset Class | Recovery Period | Allocated Basis | Yr 1 Deduction | Method |
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| Year | Calendar Yr | Annual Deduction | Accumulated Depr. | Remaining Book Value | Tax Savings |
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How Rental Property Depreciation Works (IRS Rules)
The IRS allows rental property owners to deduct the cost of the building — not the land — over a 27.5-year period using straight-line depreciation. This is one of the most powerful tax advantages in real estate investing. Under IRS Publication 946 and Publication 527 (Residential Rental Property), residential rental properties placed in service after 1986 must use the Modified Accelerated Cost Recovery System (MACRS) with a 27.5-year recovery period and the mid-month convention.
The depreciation formula is straightforward: divide your depreciable basis (purchase price + improvements + qualifying closing costs − land value) by 27.5. Land is never depreciable because it does not wear out or get used up. For a property with a $280,000 depreciable basis, the annual deduction is $280,000 ÷ 27.5 = $10,182 per year. At a 24% marginal tax rate, this translates to over $2,400 in tax savings annually — a paper deduction that reduces your taxable income without any out-of-pocket cash expense. Based on data from irs.gov (Publication 527). Last updated: May 2026.
IRS Mid-Month Convention Explained
The IRS does not give you a full year of depreciation in the first year. Instead, under the mid-month convention (IRS Publication 946, Table A-6), the property is treated as if it was placed in service in the middle of the month you actually placed it in service. This means:
- January: 11.5 months allowed — you get 11.5/12 of the full annual deduction
- July: 5.5 months allowed — you get 5.5/12 of the annual deduction
- December: 0.5 months allowed — only 1/24th of the annual deduction
A property placed in service in July with a $10,000 full-year deduction yields only $4,583 in Year 1 (5.5 ÷ 12 × $10,000). The same property placed in service in January would yield $9,583 in Year 1. The last year of depreciation is also partial — it equals 12 minus the first-year months, applied to the remaining balance, so the total depreciation across all years always equals your full depreciable basis. Timing your property purchase and rental start date can meaningfully affect your first-year deduction.
Cost Segregation Studies — Accelerating Your Deductions
A cost segregation study is an engineering analysis that identifies components of a rental property that qualify for shorter depreciation periods: 5-year (personal property like appliances, carpet, and special-purpose electrical), 7-year (office fixtures, certain equipment), and 15-year (land improvements like parking lots, fences, and landscaping). The remaining building structure continues on the 27.5-year schedule.
Cost segregation dramatically front-loads your depreciation deductions. A typical residential rental might reclassify 15–20% of the building cost to 5-year and 15-year property, allowing you to depreciate those components 2–5x faster than the standard schedule. When combined with bonus depreciation (currently phasing out through 2027 under the Tax Cuts and Jobs Act), these shorter-life assets may be fully deducted in Year 1. A $400,000 rental with 15% reclassified to 5-year property generates an extra $60,000 in accelerated deductions in the first year versus standard depreciation alone. Cost segregation studies typically cost $5,000–$15,000 for residential properties but can save 10–30× that in tax deferral. See irs.gov (Publication 946).
Depreciation Recapture — Plan Before You Sell
Depreciation is a tax deferral, not a permanent exemption. When you sell a rental property, the IRS recaptures all depreciation you previously deducted under Section 1250. The recapture is taxed at a maximum rate of 25% — the "unrecaptured Section 1250 gain" rate — which is higher than the 15% long-term capital gains rate most investors pay on appreciation. For example, if you claimed $150,000 in total depreciation over 15 years and then sell, you owe up to $37,500 in recapture tax, regardless of your actual gain from appreciation. Strategies to defer or reduce recapture include 1031 like-kind exchanges (defers all gain including recapture), holding until death (step-up in basis eliminates recapture), and installment sales that spread the gain over multiple years. Always model the full after-tax exit before selling. Sources: irs.gov (Publication 946), irs.gov (Publication 527). Last updated: May 2026.
Frequently Asked Questions
How is rental property depreciation calculated?
Residential rental property depreciation uses the IRS straight-line method over 27.5 years. Divide your depreciable basis (purchase price + improvements + qualifying closing costs − land value) by 27.5 to get the annual deduction. The first year is prorated using the mid-month convention — if placed in service in July, you get 5.5 months of depreciation. The IRS rules are detailed in Publication 946 and Publication 527 at irs.gov.
Is land depreciable for rental property?
No. Land is never depreciable because it does not wear out, decay, or get used up. Only the building structure, improvements, and certain qualifying personal property can be depreciated. The IRS requires you to subtract land value from the total purchase price before calculating your depreciable basis. Land value can be estimated from your property tax assessment, an appraisal, or comparable land sales — it typically ranges from 15% to 35% of total value depending on location.
What is the mid-month convention for rental property depreciation?
The mid-month convention is an IRS rule (Publication 946) that treats a rental property as placed in service in the middle of the month it was actually first rented. This means your first-year depreciation is prorated: a property placed in service in January gets 11.5 months of depreciation, while one placed in service in December gets only 0.5 months. The formula is: (12.5 − month number) ÷ 12 × annual depreciation. This calculator applies the mid-month convention automatically.
What is cost segregation and how does it help?
Cost segregation is an engineering study that identifies building components qualifying for shorter depreciation lives: 5 years (appliances, carpet, special-purpose wiring), 7 years (office fixtures), and 15 years (parking lots, landscaping, fences). These components can be depreciated 2–5× faster than the standard 27.5-year building, front-loading large deductions into early years. When bonus depreciation is available, 5- and 15-year property may be fully expensed in Year 1. A typical study for a residential rental costs $5,000–$15,000 but often saves 10–30× that in deferred taxes.
What is depreciation recapture and how much tax will I owe?
Depreciation recapture (IRS Section 1250) requires you to pay tax on all depreciation deductions taken when you sell the property. The recapture rate is 25% — called the "unrecaptured Section 1250 gain" — which applies to the total accumulated depreciation, not just the gain from appreciation. For example, $100,000 in total depreciation claimed over 10 years would generate up to $25,000 in recapture tax at sale. A 1031 exchange lets you defer recapture indefinitely by rolling proceeds into a replacement property.
Can I deduct rental property depreciation if I have a day job?
It depends on your adjusted gross income and participation level. Passive activity loss rules (IRC Section 469) generally prevent rental losses from offsetting W-2 income. However, if your AGI is under $100,000 and you actively participate in managing the rental, you can deduct up to $25,000 in rental losses (including depreciation) against ordinary income. This allowance phases out between $100,000 and $150,000 AGI. Real estate professionals (750+ hours/year in real estate activities) can deduct unlimited rental losses against all income. Consult a CPA for your specific situation.