Rental property depreciation calculator

How it is calculated

Yearly depreciation = (Price + closing costs − land + improvements) ÷ 27.5

Depreciable basis

What you paid plus qualifying closing costs and any improvements made before renting, minus the land. IRS Publication 527 says land can’t be depreciated because it doesn’t wear out.

Closing costs

Publication 527 adds abstract, legal and recording fees, surveys, transfer taxes, title insurance and utility installation charges to basis. It leaves out fire insurance premiums, rent paid before closing, and loan costs such as points, credit reports and the lender’s appraisal.

Land share

Split the total cost between land and building by their market values or, if you are unsure of those, by the assessed land and building values on your property tax bill. Publication 527 allows either.

27.5 years

The recovery period for residential rental property under the IRS general depreciation system, using the straight-line method. It applies to a building where 80% or more of the gross rental income comes from dwelling units.

Mid-month convention

The property is treated as placed in service halfway through its month, so the first year counts that month as half. The schedule then ends with the matching half month, which is why the first and last years are smaller.

Worked example

1. A rental costs $300,000, with $6,000 of closing costs that count toward basis: $306,000 in total.
2. The property tax bill puts 20% of the assessed value on the land, so $61,200 is land and $244,800 is the building.
3. Spread over 27.5 years (330 months), that is $8,901.82 of depreciation in each full year.
4. It was first ready to rent in July 2026. Counting July as half a month gives 5½ months in 2026: $244,800 × 5.5 ÷ 330 = $4,080.00.
5. Full years follow from 2027 to 2053, and the last half month falls in 2054: $370.91.
6. At a 24% tax rate, a full year of depreciation lowers tax by about $2,136.44.

What changes the number

Depreciation starts when the property is ready and available to rent, not when you bought it or when the first tenant moved in. If you bought in March but finished repairs and listed it in July, use July.

Improvements made after the property is in service, such as a later addition, are depreciated separately from the month they are placed in service, each over 27.5 years. This calculator covers the building and improvements made before renting.

A deduction is not the same as cash saved. Depreciation lowers taxable rental income, and rental losses can be limited: chapter 3 of Publication 527 explains when a loss can be deducted. Depreciation also reduces your basis, which affects the gain when you sell.

This calculator follows federal rules for residential rental property. It does not cover commercial property, the alternative depreciation system, bonus depreciation, cost segregation or state tax. The results are estimates, so check them with a tax professional before filing.