How is rental property depreciation calculated?

Residential rental property is depreciated straight-line over 27.5 years (commercial over 39). You depreciate only the building, not the land, so you subtract the land value from your cost basis and divide what remains by 27.5. A $300,000 property with $60,000 in land has a $240,000 basis and about $8,727 of annual depreciation.

How much can I save in taxes from depreciation?

Depreciation is a deduction against rental income, so the savings equal your annual depreciation multiplied by your marginal tax rate. At a 24% rate, $8,727 of depreciation shelters about $2,094 of tax each year — even though it costs you nothing out of pocket.

What is depreciation recapture?

When you sell, the IRS "recaptures" the depreciation you claimed and taxes it at up to 25%. A 1031 exchange lets you defer both the capital gains and the recapture by rolling the proceeds into a replacement property.

How do I determine the land value?

The most defensible source is your county tax assessor’s split between land and improvements — apply that same ratio to your purchase price. An appraisal can also allocate it. A rough default is around 20% land, but using your assessor’s figure is safer.

Rental Property Depreciation Calculator

Depreciation is one of the best tax breaks in real estate — a paper deduction that shelters your rental income without costing you a dime. Enter your purchase price and land split to see your annual deduction and the tax it saves.

Property Basis

Purchase Price

Land Value (% of price)

20%

Land can't be depreciated. Use your county assessor's land-to-improvement split; ~20% is a common default.

Capital Improvements Added to Basis

Renovations and improvements that are depreciated with the building.

Schedule

Property Type

Marginal Tax Rate (%)

Results

Annual Depreciation

Monthly

Schedule

27.5 yr

Purchase Price$0

Less: Land Value($0)

Depreciable Basis$0

Est. Annual Tax Savings$0

Annual Depreciation = Depreciable Basis ÷ 27.5

How Rental Property Depreciation Works

The IRS lets you deduct the cost of a rental building over its “useful life” — 27.5 years for residential, 39 for commercial — even as the property appreciates. You depreciate only the building, never the land:

Annual Depreciation = (Purchase Price − Land Value) ÷ 27.5

Worked example

You buy a $300,000 rental and your assessor allocates 20% ($60,000) to land. The depreciable basis is $240,000, which over 27.5 years is about $8,727 of depreciation a year. At a 24% marginal rate, that shelters roughly $2,094 in tax annually — money that stays in your pocket while the property keeps appreciating.

Planning to sell? Depreciation is recaptured (taxed up to 25%) unless you defer with a 1031 exchange. Pair this with the cash flow calculator to see the property's full after-tax picture.

Rental Property Depreciation Calculator

Results

How Rental Property Depreciation Works

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