Rental Property Depreciation Calculator

How rental property depreciation works

The IRS lets owners deduct the cost of a rental building over a set recovery period: 27.5 years for residential property and 39 years for commercial. Land is not depreciable, so its value is removed first.

The formula

Yearly depreciation = (purchase cost − land value) ÷ 27.5

Worked example

A $300,000 rental with $60,000 of land value has a $240,000 building basis. $240,000 ÷ 27.5 = $8,727 a year.

How to use this calculator

Enter the purchase price, the land value, and any closing costs and improvements, then choose the month the property was placed in service. The rental property depreciation calculator subtracts the land and spreads the rest evenly over the recovery period. It shows depreciation per year and per month, the depreciable basis, the first-year amount under the mid-month rule and the recovery period. There is no property type selector, so for a commercial building divide the depreciable basis by 39 yourself.

What the result means

The result is the deduction for one full year. It is the same amount every year because the method is straight-line. In the example above, $8,727 a year works out to about $727 a month. Depreciation is a paper expense: you do not write a check for it, but it lowers the rental income you report. The first and last years are smaller because they are prorated.

Over the full 27.5 years the deductions add up to the whole $240,000 building basis. The $60,000 of land is never deducted. A bigger deduction now also means more depreciation to be taxed when you sell, so a higher number is not automatically better.

More examples

The land share moves the answer more than most people expect. Here is the same $300,000 residential purchase with three different land values.

If the same $240,000 building were commercial, the period would be 39 years: $240,000 ÷ 39 = $6,154 a year.

What it costs at sale

Depreciation is not free money. After ten full years at $8,727, you would have claimed about $87,273. When you sell, that amount is taxed at a federal rate of up to 25%, so the bill on it could be as much as $21,818.

What changes the result

• Land value. A higher land share means a smaller building basis and a smaller deduction.
• Purchase cost. A higher cost means a larger deduction, as long as the extra cost is in the building.
• Property type. Commercial property is spread over 39 years, so the yearly figure is lower than for a residential rental with the same basis.
• Month placed in service. The later in the year the rental starts, the smaller the first-year amount.

Common mistakes

• Depreciating the whole purchase price without removing the land.
• Using 27.5 years for a commercial building.
• Guessing the land value instead of using the tax assessment or an appraisal.
• Expecting a full year of depreciation in the year you buy.
• Forgetting that depreciation you claimed is taxed when you sell.

Related calculators

Depreciation is left out of net operating income, so work that out separately with the NOI calculator. The rental property calculator shows cash flow, and the 1031 exchange calculator shows how a sale can be structured to defer tax. This page gives estimates only. Ask a tax professional what belongs in your own basis.

Frequently asked questions