The rental property depreciation calculator computes your annual MACRS deduction using the IRS 27.5-year straight-line method for residential rental properties. Depreciation reduces your taxable rental income each year — but it also creates a depreciation recapture liability when you sell.
Property Details
Land cannot be depreciated — only the building
Mid-month convention — affects year 1 deduction
How Rental Property Depreciation Works
Rental property depreciation is one of the most valuable tax deductions available to real estate investors. The IRS allows you to deduct a portion of your property's value each year — even as the property may be appreciating in value.
The 27.5-Year Rule
Residential rental property is depreciated over 27.5 years using straight-line depreciation. The depreciable basis is the cost of the building (not land) plus capital improvements. Divide by 27.5 to get the annual deduction. For a $280,000 building, that's $10,182 per year in depreciation — which at a 24% bracket saves $2,444 per year in taxes.
Depreciation Recapture on Sale
When you sell, the IRS recaptures accumulated depreciation and taxes it at up to 25% (Section 1250 unrecaptured gain rate). This is why selling a rental property can surprise owners with a large tax bill even when they've owned it for years and the property qualifies for long-term capital gains rates on the appreciation.
Frequently Asked Questions
Is this depreciation calculator free?
Yes, completely free with no signup required. All calculations run locally in your browser.
How is residential rental property depreciated?
Residential rental property is depreciated using the Modified Accelerated Cost Recovery System (MACRS) over 27.5 years using the straight-line method. Land is not depreciable — only the building and improvements.
What is depreciation recapture?
When you sell a rental property, the IRS recaptures the depreciation you claimed by taxing that amount at a maximum rate of 25% (Section 1250 unrecaptured gain), even if the property qualifies for long-term capital gains rates otherwise.
Can I deduct depreciation even if the property appreciates?
Yes. Depreciation is a paper loss based on the IRS's assumption that buildings wear out over time. You can deduct depreciation regardless of whether the actual property value goes up or down.
What counts as an improvement vs a repair?
Repairs (fixing existing items to maintain normal condition) are generally deductible in the year paid. Improvements (additions or restorations that add value or extend useful life) must be capitalized and depreciated over their own recovery period.
What is the mid-month convention?
MACRS residential rental property uses the mid-month convention — property placed in service at any point during a month is treated as if placed in service at the middle of that month. This affects the first and last year's depreciation amounts.