Rental Property Depreciation Calculator

How Rental Property Depreciation Works

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.

The Basic Formula

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.

How to Determine Land Value

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 vs. Repairs

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.

Depreciation Recapture

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.