Rental property depreciation calculator

Why depreciation matters to a landlord

Depreciation is the deduction the IRS gives you for the wear and tear on a building over time. It is the rare deduction that costs you nothing out of pocket in the year you take it — it's a paper expense that lowers your taxable rental income on Schedule E line 18. For a lot of small landlords, it's the difference between a rental that looks profitable on paper and one that's tax-efficient in reality. And it's the line spreadsheets most often forget.

The basis: only the building, never the land

You can only depreciate the building, not the land under it, because land doesn't wear out. So the first step is to split your cost basis. Your cost basis is what you paid plus the closing costs you capitalize. From that, subtract the land value — many landlords use the land-to-improvement ratio on their county assessor's statement. What's left is the building basis, and that's the number that depreciates.

27.5 years, straight-line

Residential rental property has a recovery period of 27.5 years under MACRS, taken straight-line — the same amount every full year. So a typical full year of depreciation is simply the building basis divided by 27.5. A $275,000 building basis gives a clean $10,000 a year.

The mid-month convention

You almost never put a property in service on January 1, so the first and last years are partial. The IRS uses the mid-month convention: no matter what day of the month you actually start renting, the property is treated as placed in service in the middle of that month. The first-year factor is (12 − month + 0.5) ÷ 12.

Place it in January instead and the factor is 11.5 ÷ 12 = 0.9583, giving a first-year deduction of $9,583 — which is 3.485 percent of the basis, matching the January row of IRS depreciation Table A-6 exactly. That cross-check is how you know the math is right.

The schedule, start to finish

Because year one is partial, the deductions stretch across 28 or 29 calendar years rather than a flat 27.5. You take the partial first year, then a run of identical full years, then a smaller final partial year that picks up whatever is left. Add it all up and the total recovered equals the building basis to the dollar — you depreciate the building once, no more and no less. The schedule above the explainer shows the first few years for the numbers you entered.

A few honest cautions

This calculator handles the common case — residential rental real estate, placed in service whole, depreciated straight-line. Land improvements, appliances, and renovations can have their own shorter schedules, and depreciation you take reduces your basis and is generally recaptured when you sell. These figures are estimates to help you and your CPA, not tax advice. resty.ai runs this same 27.5-year mid-month calculation per property and lands it on Schedule E for you, with the option to override a year if your accountant prefers a different figure.