Rental Property Depreciation Schedule Calculator
Generate a full 27.5-year MACRS depreciation schedule for residential rental property tax deductions.
Reviewed by Daniel Agrici, Founder & Lead Developer
Formula
Annual Depreciation = (Property Value - Land Value) / Useful Life (27.5 or 39 years)
The depreciable basis equals the property value minus the land value, since land cannot be depreciated. Residential rental property uses a 27.5-year straight-line depreciation period, while commercial property uses 39 years. The mid-month convention prorates the first and last year based on the month placed in service. Tax savings equal the annual depreciation multiplied by the marginal tax rate.
Worked Examples
Example 1: Residential Rental Placed in Service July 2024
Problem:A residential rental property purchased for $300,000 with $60,000 land value, placed in service in July 2024. Owner is in the 24% tax bracket.
Solution:Depreciable basis: $300,000 - $60,000 = $240,000\nAnnual depreciation: $240,000 / 27.5 = $8,727\nMonthly depreciation: $727\nFirst year (July, mid-month): 5.5 months = $3,999\nAnnual tax savings: $8,727 x 24% = $2,095\nTotal tax savings over 27.5 years: $240,000 x 24% = $57,600
Result:Annual Deduction: $8,727 | First Year: $3,999 | Tax Savings: $2,095/yr | Total: $57,600
Example 2: Commercial Property Placed in Service January 2024
Problem:A commercial property purchased for $500,000 with $100,000 land value, placed in service January 2024. Owner is in the 32% tax bracket.
Solution:Depreciable basis: $500,000 - $100,000 = $400,000\nAnnual depreciation: $400,000 / 39 = $10,256\nMonthly depreciation: $855\nFirst year (January, mid-month): 11.5 months = $9,833\nAnnual tax savings: $10,256 x 32% = $3,282\nTotal tax savings over 39 years: $400,000 x 32% = $128,000
Result:Annual Deduction: $10,256 | First Year: $9,833 | Tax Savings: $3,282/yr | Total: $128,000
Frequently Asked Questions
How do I determine the depreciable basis of a rental property?
The depreciable basis is the portion of the property value attributable to the building and improvements, excluding the land value. Start with the total cost basis, which includes the purchase price plus closing costs like title insurance, attorney fees, and recording fees that are not deductible as expenses. Then subtract the land value to arrive at the depreciable basis. The IRS requires a reasonable allocation between land and building values. Common methods include using the property tax assessment breakdown, which typically separates land and improvement values, or obtaining a professional appraisal. If the tax assessment shows 80 percent improvements and 20 percent land, apply those percentages to your purchase price. The land-to-building ratio varies dramatically by location, from 10 percent land in rural areas to 50 percent or more in expensive urban markets.
What happens to depreciation when I sell a rental property?
When you sell a depreciated rental property, the IRS requires you to pay depreciation recapture tax on the accumulated depreciation deductions you claimed during ownership. This recapture is taxed at a maximum federal rate of 25 percent, regardless of your ordinary income tax bracket. For example, if you claimed $100,000 in total depreciation deductions, you would owe up to $25,000 in recapture taxes upon sale. Importantly, you must recapture depreciation even if you failed to claim it, because the IRS taxes the amount you were allowed to deduct, not just what you actually deducted. Any gain above the original purchase price is taxed as long-term capital gains at 0 to 20 percent. A 1031 exchange can defer both capital gains taxes and depreciation recapture by rolling the proceeds into a replacement property, though the deferred depreciation will eventually be recaptured when the replacement property is sold.
What is bonus depreciation and how does it apply to rental property?
Bonus depreciation is a tax provision that allows investors to deduct a large percentage of the cost of certain assets in the first year rather than spreading the deduction over the normal useful life. Under the Tax Cuts and Jobs Act of 2017, bonus depreciation was set at 100 percent through 2022, then phases down by 20 percent each year. For 2024, the bonus depreciation rate is 60 percent, dropping to 40 percent in 2025 and 20 percent in 2026. Bonus depreciation applies to the shorter-lived components identified through cost segregation, such as 5-year, 7-year, and 15-year property, but not to the 27.5-year or 39-year building structure itself. This means a cost segregation study that identifies $80,000 in short-lived assets could generate a $48,000 bonus depreciation deduction in 2024 at 60 percent. This strategy is particularly valuable for high-income investors seeking to offset substantial taxable income.
How does depreciation interact with passive activity loss rules?
Rental real estate is generally classified as a passive activity under IRS rules, meaning losses including depreciation deductions can only offset passive income, not active income like wages or business profits. However, there is an important exception: taxpayers with adjusted gross income under $100,000 can deduct up to $25,000 in passive rental losses against active income. This allowance phases out between $100,000 and $150,000 AGI, disappearing entirely above $150,000. Real estate professionals who spend more than 750 hours per year in real estate activities and more time in real estate than any other profession can treat rental activities as non-passive, allowing unlimited depreciation deductions against any type of income. Unused passive losses are suspended and carried forward to future years when they can offset passive income or be fully deducted when the property is sold in a fully taxable disposition.
References
Reviewed by Daniel Agrici, Founder & Lead Developer · Editorial policy