Quick Answer
Yes, you must deduct depreciation on rental property over 27.5 years for residential properties. A $275,000 rental property generates $10,000 in annual depreciation deductions. You're required to claim depreciation whether you actually take it or not - failure to claim it still reduces your cost basis for future sale calculations.
Best Answer
Robert Kim, Tax Return Analyst
Best for landlords who want to understand how depreciation works and maximize this major tax benefit
How rental property depreciation works
Depreciation is mandatory, not optional. According to [IRS Publication 946](https://www.irs.gov/pub/irs-pdf/p946.pdf), you must depreciate the building portion of rental property over 27.5 years (residential) or 39 years (commercial). Even if you don't claim depreciation, the IRS assumes you did when calculating gain on sale.
Calculating your depreciation deduction
Step 1: Determine the building's depreciable basis
Step 2: Apply the depreciation method
Example: $350,000 rental property purchase
This creates a $9,764 annual deduction that reduces your taxable rental income.
Impact on taxes: Real example
Without depreciation:
With depreciation:
Annual tax savings: $2,343
Special depreciation rules and opportunities
Bonus depreciation (2026 - 60% rate):
Cost segregation studies:
Section 179 deduction:
Depreciation recapture: What happens when you sell
When you sell rental property, you must "recapture" depreciation taken:
Sale example:
What you should do
1. Always claim depreciation - You'll owe recapture tax whether you claimed it or not
2. Keep detailed records - Track all improvements that increase your basis
3. Consider cost segregation - For properties over $250,000, the upfront cost often pays for itself
4. Plan for recapture - Set aside 25% of cumulative depreciation for future sale
5. Use our refund estimator to see how much depreciation could save you this year
Key takeaway: Depreciation typically creates $3,600-$15,000 in annual deductions for rental properties. It's mandatory, not optional, and provides substantial tax benefits during ownership while creating recapture obligations upon sale.
Key Takeaway: Depreciation creates $3,600-$15,000 in annual deductions and is mandatory whether you claim it or not, making it essential to take advantage of this major tax benefit.
Depreciation timelines and rates for different property types and components
| Property Type/Component | Depreciation Period | Annual Rate | $300K Property Example |
|---|---|---|---|
| Residential rental building | 27.5 years | 3.64% | $10,909/year |
| Commercial rental building | 39 years | 2.56% | $7,692/year |
| Appliances & furniture | 5 years | 20% | $4,000/year (if $20K) |
| Carpeting & fixtures | 5 years | 20% | $2,000/year (if $10K) |
| Landscaping | 15 years | 6.67% | $667/year (if $10K) |
| Land (never depreciates) | Never | 0% | $0 (typically 20-30%) |
More Perspectives
Robert Kim, Tax Return Analyst
Best for first-time rental property buyers who need to understand depreciation basics and requirements
Depreciation basics for new landlords
As a new rental property owner, depreciation will likely be your largest single deduction. It's a non-cash expense that reduces taxable income without affecting your cash flow.
Simple depreciation calculation
For most residential rental properties:
1. Determine building value: Total cost minus land value
2. Divide by 27.5 years: That's your annual deduction
3. Example: $220,000 building ÷ 27.5 = $8,000/year
Why you must take depreciation
The IRS requires depreciation on rental property. Per [IRS Publication 527](https://www.irs.gov/pub/irs-pdf/p527.pdf), if you don't claim it:
First-year considerations
Mid-month convention: Regardless of when you buy, the first year uses mid-month depreciation. If you buy in March, you get 9.5 months of depreciation (March = 0.5 month + April through December).
Placed in service date: Depreciation starts when the property is available for rent, not when you find tenants.
Common new investor mistakes
1. Not separating land value: Only the building depreciates, not land
2. Including personal property: Appliances may qualify for faster depreciation
3. Missing improvements: Capital improvements increase your depreciable basis
Key takeaway: New investors should claim depreciation from day one - it's typically worth $5,000-$12,000 in annual tax savings and is required by law regardless.
Key Takeaway: New investors must claim depreciation from day one as it's required by law and typically provides $5,000-$12,000 in annual tax savings.
Michelle Woodard, Tax Policy Analyst
Best for seasoned real estate investors who want to understand depreciation recapture and planning strategies
Advanced depreciation strategies and exit planning
For experienced investors, depreciation planning extends beyond annual deductions to include sophisticated tax strategies and exit planning.
Depreciation recapture planning
Current recapture rules (2026):
Strategic considerations:
Advanced depreciation strategies
Cost segregation acceleration:
Section 1031 exchanges:
Opportunity Zones (if applicable):
Estate planning considerations
Step-up in basis at death:
Like-kind exchange strategies:
Portfolio-level optimization
Timing depreciation across properties:
Key takeaway: Sophisticated investors can use cost segregation, 1031 exchanges, and strategic timing to minimize effective depreciation recapture rates while maximizing current deductions.
Key Takeaway: Advanced strategies like 1031 exchanges and cost segregation can defer or minimize depreciation recapture while maximizing current tax benefits.
Sources
- IRS Publication 946 — How To Depreciate Property
- IRS Publication 527 — Residential Rental Property
- IRC Section 167 — Depreciation statutory requirements
Related Questions
Reviewed by Michelle Woodard, Tax Policy Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.