Calculate your annual depreciation tax deduction (27.5-year schedule)
Land is not depreciable — check your tax assessment
Renovations, additions, HVAC replacement, etc.
| Year | Annual | Cumulative | Remaining |
|---|---|---|---|
| 1 | $9,273 | $9,273 | $245,727 |
| 2 | $9,273 | $18,545 | $236,455 |
| 3 | $9,273 | $27,818 | $227,182 |
| 4 | $9,273 | $37,091 | $217,909 |
| 5 | $9,273 | $46,364 | $208,636 |
Depreciation is one of the most powerful tax benefits of owning rental property. The IRS allows you to deduct the cost of the building (not land) over its "useful life" — 27.5 years for residential rental property. This is a "paper loss" that reduces your taxable income even though you haven't actually spent any money.
Annual Depreciation = (Property Value - Land Value + Improvements) / 27.5
For a $300,000 property with $60,000 in land value: ($300,000 - $60,000) / 27.5 = $8,727/year in depreciation.
Check your county tax assessment — it typically breaks the property into land and building values. You can also use the purchase price allocation from your closing documents, or get an appraisal. A common rule of thumb is 20-30% for land in suburban areas, though this varies significantly by market.
Capital improvements (new roof, HVAC system, kitchen remodel) are added to your depreciable basis. Regular repairs and maintenance (fixing a leaky faucet, painting) are deducted immediately as expenses. The distinction matters for Schedule E reporting.
When you sell the property, the IRS "recaptures" the depreciation at a 25% tax rate. This is important to factor into your exit strategy. A 1031 exchange can defer both capital gains and depreciation recapture taxes.
This calculator is for educational purposes. Consult a CPA for your specific tax situation.
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