Rental Property Depreciation Calculator

How rental property depreciation works

The US tax code lets owners of income-producing real estate recover the cost of the building — not the land — over a fixed number of years. For residential rental property that period is 27.5 years, and the deduction is claimed under MACRS (Modified Accelerated Cost Recovery System) using the General Depreciation System, straight-line method, with a mid-month convention. It is one of the largest and most reliable tax benefits in real estate, and it is the reason a cash-flow-positive rental can still show a taxable loss.

Four rules govern the calculation. First, land is never depreciable — only the structural portion of your basis, which is why you split out the land value from the purchase price (county assessments, appraisals, or a title company breakdown all work). Second, certain costs are capitalized into basis: closing costs, attorney fees, and immediate improvements made to get the property rent-ready all increase what you recover. Third, depreciation begins when the property is placed in service — ready and available to rent — not necessarily on the closing date. Fourth, the mid-month convention treats the month you place it in service as half a month of use, so your first tax year deduction is always partial.

The deduction is an expense against rental income on Schedule E. For an investor in the 24% marginal bracket, every dollar depreciated shelters24 cents of tax — and because the deduction is non-cash, that tax saving is real money without a matching cash outflow.

How to use this calculator

1. Enter the purchase price. Use your actual acquisition cost, not the market value. This is the starting point of your depreciable basis.
2. Split out the land. Set the land value as a percentage of the purchase price.20–30% is typical nationally, but rural acreage and West Coast markets can run much higher. The calculator excludes this portion automatically and shows it as a separate line.
3. Add capitalized costs. Closing costs, attorney fees, and any immediate improvements (a new roof, a kitchen refresh before renting) belong in basis rather than in a deductible expense.
4. Set the placed-in-service month. The month the unit was ready and available to rent. It drives the mid-month convention, so a January start recovers noticeably more in year one than a November start.
5. Set your marginal tax rate. Combined federal and state. The schedule shows the estimated tax saving for every year, including the partial first and last years.
6. Read the schedule. The annual deduction, cumulative basis recovered, and lifetime tax saving update instantly. The chart makes the mid-month convention visible: the first and final bars are shorter than the twenty-six full years between them.

Formulas & methodology

A January start yields 11.5/12 of a year divided by 27.5 — the3.485% first-year rate in IRS Table A-1. A December start yields just0.152%. The twenty-six full years that follow are each1 ÷ 27.5 = 3.636% of basis, and the final tax year recovers the remainder to close the basis out to exactly100%.

Worked example

Buy a $300,000 rental with 20% of the price attributable to land and $6,000 of closing costs, placing it in service in January.

The land at $60,000 is excluded, leaving a depreciable basis of $246,000. A full year's deduction is $8,945 — $745 a month — which shelters $2,147 of tax each year at a 24.0% marginal rate. Thanks to the mid-month convention, the first partial year claims $8,573. Across the full 27.5-year recovery period you deduct $246,000 and save an estimated $59,040.

Cost segregation, recapture, and the long game

Cost segregation accelerates the basic schedule. A study reclassifies components of the building — flooring, cabinetry, site improvements, appliances — into five-, seven-, and fifteen-year property that can be depreciated far faster, often with bonus depreciation in the early years. The result is a larger deduction now, a smaller one later, and more tax saved on a time-value basis. Studies cost a few thousand dollars and make sense on larger rentals and short-term rentals; run the numbers with a CPA before commissioning one.

Depreciation recapture is the other side of the coin. Every dollar you depreciate reduces your cost basis, so at sale that much of your gain is taxed at recapture rates — generally up to25% for residential real property — rather than at long-term capital gains rates. Critically, the IRS recaptures depreciation you failed to claim anyway, so taking the deduction is never optional good hygiene; it is the correct treatment either way.

Passive activity rules limit who benefits immediately. Rentals are passive activities by default, so losses generated by depreciation (and other expenses) generally offset only other passive income unless you qualify as a real estate professional or under the $25,000 active-participation allowance, which phases out at higher incomes. Suspended losses carry forward and are released when the property is sold. These rules are why the tax-savings figure in this calculator is an estimate of the deduction's value — the timing depends on your full return. Pair the estimate with a conversation about basis and recapture with your CPA before sale, and read our disclaimer for the full educational-use terms.

Investor FAQ

How do you calculate depreciation on a rental property?

Subtract the land value from your purchase price, add capitalized costs such as closing costs and immediate improvements, and divide the resulting depreciable basis by27.5. A $300,000 house with $60,000 of land and $6,000 of capitalized costs has a $246,000 basis and deducts about $8,945 per year, recovered under the MACRS GDS schedule with the mid-month convention.

How much can I depreciate each year on a rental?

For a full tax year of service, one twenty-seventh and a half of the depreciable basis — about3.636% — which is the fixed annual deduction shown in IRS Publication 946 Table A-1. The first and last tax years are partial because the mid-month convention treats the month you place the property in service as half a month.

Can I depreciate a house I live in and rent out?

Yes, but only the portion used for business. If you owner-occupy a duplex and rent the other unit, you depreciate half the basis (and claim half the expenses) based on the rentable square footage. A home used entirely as a personal residence generates no depreciation at all, and a property held strictly for sale is not depreciable either.

Is depreciation recaptured when I sell a rental?

Yes. Depreciation taken reduces your cost basis, so the gain attributable to it is taxed at recapture rates — generally up to25% for residential real property, versus15% or20% for long-term capital gains on the rest of the gain. Depreciation you never claimed is still recaptured at sale, so claiming it every year is the correct move.

What happens if I forget to take depreciation on a rental?

The IRS still treats the property as if depreciation had been taken. You can fix prior years by filing amended returns (Form 1040-X) within the statute of limitations, and the depreciable portion is recovered at sale under the unrecaptured section 1250 gain rules regardless. Work with a CPA and keep your settlement statement — it documents your basis.

Rental Property Depreciation by state

Each state edition starts from that state's typical home price, rent, property tax, and insurance, with a worked example and notes on local rules.

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