Quick Answer
Rental property depreciation allows you to deduct the cost of your building (not land) over 27.5 years using straight-line depreciation. For a $300,000 rental property with $240,000 in building value, you can deduct $8,727 annually ($240,000 ÷ 27.5 years), reducing taxes by $2,000-$3,500 per year depending on your tax bracket.
Best Answer
Robert Kim, CPA
Homeowners who recently converted their primary residence to a rental or bought their first investment property
How rental property depreciation works
Depreciation allows you to deduct the cost of your rental property building over its "useful life" — which the IRS sets at 27.5 years for residential rental property. This is a non-cash deduction that reduces your taxable income even though you haven't spent any money.
According to IRS Publication 527, you must separate the total property cost into building value (depreciable) and land value (not depreciable). Only the building portion qualifies for depreciation.
Step-by-step depreciation calculation
Example: $350,000 rental property purchase
1. Determine total basis: $350,000 purchase price + $3,000 closing costs = $353,000
2. Allocate between land and building: Using county tax assessment showing 30% land, 70% building
3. Calculate annual depreciation: $247,100 ÷ 27.5 years = $8,985 per year
4. Monthly depreciation: $8,985 ÷ 12 = $748.75 per month
Depreciation methods and timing
Straight-line method (required for residential rental):
Mid-month convention: The IRS assumes all rental property is placed in service mid-month, regardless of the actual date.
First-year depreciation example
If you bought the property above in March 2026:
Tax savings from depreciation
What increases your depreciable basis
Capital improvements increase your basis and depreciation:
These improvements start their own 27.5-year depreciation schedule when completed.
Special considerations for converted primary residence
If you converted your former home to a rental:
What you should do
1. Get accurate land/building allocation: Use county assessments or professional appraisal
2. Track all capital improvements: These increase your depreciable basis
3. Start depreciation immediately: Don't wait — you must "recapture" depreciation whether you claimed it or not
4. Keep detailed records: You'll need documentation when you sell
Use our refund estimator to see how depreciation deductions affect your overall tax situation.
Key takeaway: Depreciation typically provides $2,000-$4,000 in annual tax savings for most rental properties, making it crucial to calculate and claim from day one of rental activity.
*Sources: IRS Publication 527 (Residential Rental Property), IRS Publication 946 (How To Depreciate Property)*
Key Takeaway: Rental property depreciation provides $2,000-$4,000 in annual tax savings for most properties by allowing you to deduct the building cost over 27.5 years, but you must separate land (non-depreciable) from building value (depreciable).
Depreciation timeline and tax impact for different property values
| Property Value | Building Basis | Annual Depreciation | Tax Savings (24% bracket) | Total 27.5-year Benefit |
|---|---|---|---|---|
| $200,000 | $140,000 | $5,091 | $1,222 | $33,600 |
| $350,000 | $245,000 | $8,909 | $2,138 | $58,800 |
| $500,000 | $350,000 | $12,727 | $3,055 | $84,000 |
| $750,000 | $525,000 | $19,091 | $4,582 | $126,000 |
More Perspectives
Robert Kim, CPA
Landlords with multiple properties who want to optimize depreciation strategies and understand advanced concepts
Advanced depreciation strategies for multiple properties
Cost segregation studies can significantly accelerate depreciation for properties over $500,000. By identifying building components with shorter useful lives, you can depreciate some items over 5, 7, or 15 years instead of 27.5 years.
Typical cost segregation results:
A $1,000,000 property might generate $30,000-$50,000 in additional first-year deductions through cost segregation.
Section 179 and bonus depreciation: Certain property improvements may qualify for immediate expensing rather than 27.5-year depreciation:
Partial disposition elections: When replacing building components (roof, HVAC, flooring), you can "retire" the undepreciated basis of the old component and take an immediate loss, while starting fresh depreciation on the replacement.
State depreciation differences: Some states require different depreciation methods or have bonus depreciation add-backs, creating federal/state differences that require careful planning.
Key takeaway: Advanced depreciation strategies like cost segregation and partial disposition elections can increase first-year deductions by $20,000-$50,000+ for larger properties, but require professional analysis to implement correctly.
Key Takeaway: Experienced landlords with larger properties should consider cost segregation studies and partial disposition elections to accelerate depreciation and significantly increase first-year tax deductions.
Robert Kim, CPA
Active real estate investors focused on tax strategy optimization and long-term wealth building
Depreciation recapture and exit strategy planning
Depreciation recapture is taxed at 25% when you sell, regardless of your ordinary tax rate. This affects long-term investment strategy:
Example: Property purchased for $300,000, claimed $100,000 in depreciation over 10 years, sold for $400,000
1031 exchanges defer recapture: Like-kind exchanges allow you to defer both capital gains and depreciation recapture indefinitely, making them powerful tools for building wealth.
Opportunity Zone investments: Can provide significant depreciation benefits plus capital gains deferral/reduction for investors in qualified zones.
Portfolio-level considerations:
Professional real estate investor status: Material participation in real estate can unlock additional benefits:
Key takeaway: Sophisticated investors must balance current depreciation benefits against future recapture taxes, using 1031 exchanges and strategic timing to maximize long-term after-tax returns.
Key Takeaway: Real estate investors must balance current depreciation benefits (25-35% tax savings) against future recapture taxes (25% rate), using 1031 exchanges and strategic timing to optimize long-term portfolio returns.
Sources
- IRS Publication 527 — Residential Rental Property (Including Rental of Vacation Homes)
- IRS Publication 946 — How To Depreciate Property
Related Questions
Reviewed by Robert Kim, CPA 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.