How rental depreciation actually works
The IRS treats a rental building as an asset that wears out over a fixed life. Residential rental property is recovered straight-line over 27.5 years; nonresidential (commercial) real property uses 39 years (IRS Pub 527). Straight-line means the same deduction every full year — no front-loading. The mid-month convention applies in the year you place the property in service and the year you dispose of it, so those two years are prorated by the month rather than claimed in full.
Land is not depreciable, and the allocation matters more than people think. Land doesn't wear out, so it never enters your basis. Your depreciable basis is (purchase price − land value) + capital improvements. The 20% land default in this calculator is purely illustrative — a placeholder, not a recommendation. The defensible way to set it is your county assessor's land-to-building ratio from the property tax record, or an appraisal that explicitly allocates value between land and improvements. Real land shares vary enormously: an urban lot can be most of the value, while rural land can be a small fraction. Since every percentage point shifted to land permanently reduces your deduction, this is worth getting from a document rather than from intuition.
The “allowed or allowable” trap. When you sell, depreciation is recaptured as unrecaptured Section 1250 gain, taxed at a maximum rate of 25%. Here is the part that catches people: recapture applies to depreciation allowed or allowable — the depreciation you were entitled to take, whether or not you actually claimed it. Landlords who skip depreciation thinking they're dodging the recapture are simply paying the tax without ever having received the benefit. If you have missed years, that is a conversation to have with a CPA about a change in accounting method, not something to leave alone.
A deferral, not a free lunch. Depreciation reduces taxable rental income now, but it also reduces your adjusted basis, which increases your taxable gain later. The real benefits are timing — a dollar deducted today is worth more than a dollar of tax paid at sale — and the rate spread, since you may deduct at an ordinary rate above 25% while recapture is capped at 25%. Both are genuine. Neither makes depreciation costless. If you want to defer the reckoning entirely, a 1031 exchange can roll gain and recapture into a replacement property. To see how depreciation fits alongside the rest of the numbers, run the deal through the rental property ROI calculator.
If the rental was once your home, recapture survives the exclusion. Converting a former residence into a rental does not put the depreciation beyond reach. Gain equal to depreciation allowed or allowable after 6 May 1997 can never be excluded under Section 121, however completely you meet the two-out-of-five-year ownership and use tests — the exclusion applies to what is left after that slice is carved out. The home sale capital gains tax calculator takes the depreciation figure from this page and works the two together: basis reduced by depreciation, recapture taxed at up to 25%, and only the remainder tested against the $250,000 or $500,000 exclusion.
This tool is an educational estimate, not tax advice. Depreciation, basis allocation, and recapture are fact-specific — consult a CPA or tax professional before you file or sell.
IRS Publication 527 requires residential rental buildings to depreciate straight-line over 27.5 years, and land is never part of that basis. On a $343,800 property with a 15% land allocation, the depreciable basis is $292,230 and annual depreciation is $10,627 — but that deduction is a deferral, not a gift: on sale, accumulated depreciation is recaptured as unrecaptured Section 1250 gain, taxed at a maximum 25% rate, per IRS Topic 409.
The three numbers that decide the deduction
This calculator's arithmetic is short. Land value = purchase price × land percentage; depreciable basis = purchase price − land value + any improvements; annual depreciation = depreciable basis ÷ 27.5. On a $343,800 purchase with 15% allocated to land — $51,570 — the depreciable basis is $292,230, and dividing by 27.5 gives $10,626.55 a year, or $885.55 a month. Held five years with no improvements, accumulated depreciation reaches $53,133. At a 24% marginal rate, that first year's deduction defers $2,550 in tax — an annual saving, not a permanent one.
Publication 527 gives a worked 85%/15% land-to-building example, which is exactly the split used above; the source itself is explicit that the allocation should come from a fair-market-value or assessed-value ratio, not a round guess — a defensible number is your county assessor's own land-to-building split or an appraisal, not this page's illustrative 15%.
Two mechanics almost nothing else explains
Two rules from Publication 946 rarely get stated precisely. First, the mid-month convention: in the year a property is placed in service (and the year it is disposed of), depreciation is prorated using a numerator of full months in service plus 0.5, over a denominator of 12 — not a full year's deduction regardless of when in the year you started renting it. Second, recapture applies to depreciation "allowed or allowable" — the IRS bases it on what you were entitled to deduct, whether or not you actually claimed it, so skipping the deduction does not avoid the eventual tax.
Methodology
Depreciation figures are this calculator's own straight-line formula (depreciable basis ÷ 27.5 years) applied to a $343,800 purchase price with an illustrative 15% land allocation, matching Publication 527's worked example ratio. Recapture is accumulated depreciation × the 25% maximum rate stated in IRS Topic 409. No figure here is estimated or interpolated.
Sources
- IRS — Publication 527, Residential Rental Property — accessed 2026-09-07
- IRS — Publication 946, How To Depreciate Property — accessed 2026-09-07
- IRS — Topic No. 409, Capital Gains and Losses — accessed 2026-09-07
Annual depreciation by price and land allocation (residential, 27.5 yr)
| Purchase price | 15% land | 20% land | 30% land | 40% land |
|---|---|---|---|---|
| $250,000 | $7,727 | $7,273 | $6,364 | $5,455 |
| $350,000 | $10,818 | $10,182 | $8,909 | $7,636 |
| $500,000 | $15,455 | $14,545 | $12,727 | $10,909 |
| $750,000 | $23,182 | $21,818 | $19,091 | $16,364 |
Depreciable basis = (price − land) ÷ 27.5. No improvements assumed. Land share should come from your county assessor's land-to-building ratio or an appraisal — not a default. Commercial property uses 39 years instead. Illustrative only; not tax advice.
Frequently asked questions
How is rental property depreciation calculated?
Residential rental buildings are depreciated straight-line over 27.5 years; nonresidential (commercial) real property uses 39 years. First you subtract the land value from your purchase price, because land is never depreciable, then add any capital improvements. That figure is your depreciable basis. Divide it by 27.5 (or 39) for your annual deduction. The mid-month convention prorates the year you place the property in service and the year you dispose of it.
Why can't I depreciate the land?
Depreciation is meant to reflect an asset wearing out over time. A building deteriorates; land does not. So only the building portion of your purchase price enters the depreciable basis. The land allocation matters a lot: a higher land share means a smaller annual deduction. The defensible way to set it is your county assessor's land-to-building ratio from the property tax record, or an appraisal that allocates value between land and improvements. A round guess is exactly the sort of thing that draws scrutiny.
What is depreciation recapture and how much is the tax?
When you sell, the depreciation you took on the building is recaptured as unrecaptured Section 1250 gain and taxed at a maximum rate of 25%, separately from any capital gain on appreciation. It is the price of the deductions you enjoyed while you held the property. Depreciation lowers your adjusted basis year by year, which increases your taxable gain at sale.
What does "allowed or allowable" mean, and can I skip depreciation to avoid recapture?
No — and this is the single most expensive misunderstanding in rental real estate. Recapture is calculated on depreciation "allowed or allowable," meaning the IRS bases it on the depreciation you were entitled to take, whether or not you actually claimed it. If you never deducted a dollar of depreciation, you still owe recapture as if you had. Skipping the deduction gets you the tax bill without the benefit.
Is depreciation a tax break or just a deferral?
Mostly a deferral. Each year depreciation reduces your taxable rental income at your ordinary marginal rate, but it also reduces your basis, so the benefit comes back as recapture when you sell. The real advantages are timing (money now beats money later) and rate arbitrage (you may deduct at a rate above 25% and recapture at a maximum of 25%). It is a genuine benefit, but it is not free money.
Can I defer recapture when I sell?
A 1031 like-kind exchange lets you roll the proceeds into a replacement investment property and defer both capital gains and depreciation recapture, subject to strict identification and closing deadlines. Your depreciation history carries over to the new property rather than disappearing. This is a technical area with unforgiving timelines — work with a qualified intermediary and your CPA well before you list.