Rental property depreciation calculator with a year-by-year schedule.

The rental depreciation formula

Annual depreciation = (purchase price + capitalized costs − land value) ÷ 27.5 years (residential) or 39 years (nonresidential)

That is the full-year figure. Year one is prorated by the month the property was placed in service, and the last year picks up whatever basis is left. This is the general depreciation system (GDS) straight-line method that IRS Publication 527 requires for rental buildings placed in service after 1986.

What goes into depreciable basis (and what doesn't)

• Included: the purchase price of the building, settlement costs such as title insurance, recording fees, legal fees and transfer taxes, and capital improvements made before the rental was placed in service.
• Not included: land, loan costs such as points and mortgage insurance (amortized or deducted separately), prepaid property tax and insurance, and repairs (deducted as expenses when they are repairs rather than improvements).
• Closing costs are split too. Settlement costs belong to both the land and the building, so they follow the same land-to-building ratio as the price. The calculator does this for you.

Why land is excluded

Land does not wear out, so the IRS does not allow it to be depreciated. Every dollar you assign to land is a dollar you never deduct, which makes the split one of the biggest inputs in the calculation. The usual starting point is your county assessor's ratio of land value to total value, applied to your purchase price. Our default is 20% for residential property; replace it with your assessor's figure when you have it.

The mid-month convention, with an example

Rental buildings use the mid-month convention: the IRS treats the property as placed in service in the middle of its month, whatever the actual day. The first-year fraction is:

First-year % = (12 − month placed in service + 0.5) ÷ 12 ÷ recovery period

Example: you buy a $500,000 rental, allocate 20% to land, and place it in service in July. Basis is $400,000. July gives 5.5 months, so year one is $400,000 × 5.5 ÷ 12 ÷ 27.5 = $6,667 (1.667%, matching IRS Table A-6). Each full year after that is $14,545, and the last sliver, $606, lands in 2054. Place the same rental in service in January and year one is 3.485%; in December it is only 0.152%.

27.5 years vs. 39 years

Short-term rentals sit between the two. Many use 27.5 years; 39 years can apply when the property is nonresidential, for example an average guest stay of 7 days or less with services provided. That is a call for your tax professional, which is why the calculator lets you pick either. The 39-year column in IRS Table A-7a is printed from a rounded monthly step, so tax software that reads the table can differ from the exact formula by a few dollars.

When depreciation starts

Depreciation starts when the rental is placed in service: ready and available for rent. A house you close on in March, renovate, and list in June starts in June. It ends when you have recovered the full basis or when you sell or stop renting the property, with a half-month for the month you dispose of it.

Depreciation recapture when you sell

Depreciation lowers your adjusted basis, so it raises your taxable gain when you sell. The gain attributable to depreciation on the building is unrecaptured §1250 gain, taxed at a maximum federal rate of 25%. Depreciation on personal property that a cost segregation study reclassified (5- and 7-year property) is recaptured under §1245 at ordinary income rates. The IRS counts depreciation that was allowable even if you never claimed it, so skipping it does not avoid recapture. A §1031 exchange defers both. More in our guide to cost segregation and depreciation recapture.

How cost segregation changes the picture

Straight line treats the whole building as one 27.5- or 39-year asset. A cost segregation study separates the parts that the tax code gives shorter lives: appliances, flooring, cabinets and furnishings (5-year) and driveways, fencing and landscaping (15-year). Those qualify for bonus depreciation, which is 100% for property acquired after January 19, 2025. Studies typically reclassify 8–32% of a long-term rental's depreciable basis and 19–39% of a furnished short-term rental's.

On the July example above, at the single-family rental's most common share (15%), the year-one deduction would be about $65,667 instead of $6,667. That is an estimate, not a promise: your study can land anywhere in the band, and whether you can use the loss this year depends on the passive activity rules. Total depreciation over the life of the property does not change; the study moves it forward. Studies start from $495. To model the study alone, use the cost segregation calculator; for a rental you placed in service in an earlier year, the §481(a) catch-up calculator. What a study for a rental includes, and what it costs by property type: cost segregation study for rental property.

Sources

• IRS Publication 527, Residential Rental Property: basis, land allocation, placed in service, 27.5-year GDS.
• IRS Publication 946, How To Depreciate Property: MACRS, the mid-month convention, Tables A-6 and A-7a, bonus depreciation. Our IRS Publication 946 guide reproduces the tables.

Further reading: rental property depreciation guide · first-year depreciation guide · MACRS depreciation guide.