How to use the rental property depreciation calculator
The example is a rental bought for $350,000 with $6,000 of closing costs, of which $70,000 is the value of the land. It was first ready to rent in June 2026.
- Purchase price and closing costs. Include settlement costs that add to basis, such as title insurance, legal and recording fees and transfer taxes. Loan fees are not part of the building’s basis.
- Land value. Enter it as a dollar figure or as a percent of the price. The property tax assessment usually shows the split between land and improvements.
- Property type. Residential rental property uses 27.5 years; commercial buildings use 39.
- Month and year placed in service. This is when the property was ready and available to rent, which can be later than the purchase date if you renovated first.
- Later improvement, if you added something like a new roof. It starts its own schedule when it is placed in service.
- Marginal tax rate, optional, to see what a year of depreciation is worth in tax.
How depreciation is calculated
Residential rental buildings are depreciated with the straight-line method over 27.5 years. Only the building counts, so the first step is the basis:
Depreciable basis = (Purchase price + Closing costs) × Building share
Full-year depreciation = Depreciable basis ÷ 27.5Use 39 instead of 27.5 for nonresidential real property. A full year is 1 ÷ 27.5 = 3.636% of the basis.
The mid-month convention treats the building as placed in service, and later sold, in the middle of the month. The first year therefore counts half of the first month plus every month after it:
Later years = Full-year depreciation, until the basis runs outMonth is 1 for January through 12 for December. The final year takes whatever basis is left.
A worked example
With $70,000 of land, the building accounts for 80% of the price. Applying that share to the price plus closing costs gives a depreciable basis of $284,800. The remaining $71,200 is land and is never depreciated.
A full year of depreciation is $284,800 ÷ 27.5 = $10,356.36.
The rental was placed in service in June, so the first year counts 6.5 of 12 months: $5,609.70. Full years follow until 2053, when the last $9,924.85 is deducted. That is 28 tax years in all.
At a 24% marginal rate, each full year of depreciation is worth $2,486 in tax, if you can use the deduction that year.
Why the month matters
The month you place the property in service changes the first and last years, but never the total. The percentages below are the share of the basis deducted in each year. The first-year and final-year figures match the IRS’s percentage table for residential rental property in Publication 527.
| Placed in service | First year | Full years | Final year | Tax years |
|---|---|---|---|---|
| January | 3.485% | 3.636% | 1.970% | 28 |
| June | 1.970% | 3.636% | 3.485% | 28 |
| July | 1.667% | 3.636% | 0.152% | 29 |
| December | 0.152% | 3.636% | 1.667% | 29 |
A rental placed in service in the first half of the year is fully depreciated over 28 tax years; one placed in service from July onwards spreads over 29. A December start gives only $431.52 in the first year, against $9,924.85 for January.
The land split changes every year’s deduction
Because land is excluded, the split between land and building is the single biggest input after the price. If the land were 30% of the price instead of 20%, the annual deduction would fall from $10,356.36 to $9,061.82, for all 27.5 years. Use a defensible source: the assessor’s ratio, an appraisal or a cost segregation study. Picking a low land value without support invites trouble in an audit.
Improvements and other assets
Capital improvements to the building, such as a roof, windows or a new heating system, are depreciated separately over 27.5 years from the month they are placed in service. Adding an $18,000 improvement in the example adds $654.55 a year and stretches the schedule to 2056. Repairs that only keep the property in working order are deducted in the year you pay for them instead.
Some assets in a rental have shorter lives: appliances, carpets and furniture are generally 5-year property, and land improvements such as fences and driveways 15-year property. This calculator handles the building and building improvements only.
Depreciation recapture and passive losses
Depreciation is a deduction now that is partly paid back later. When you sell, the depreciation you were allowed to take reduces your basis, which raises the gain. That part of the gain is taxed at a maximum of 25% as unrecaptured Section 1250 gain, rather than at the usual long-term capital gains rates. In the example, ten tax years of depreciation add up to $98,817, which could mean up to $24,704 of tax on sale.
Using the deduction each year is not automatic either. Rental income is generally passive, and passive losses can offset only passive income. There is a special allowance for owners who actively manage their rentals, which phases out at higher incomes. Losses you cannot use are carried forward and released when you sell the property.
What this calculator does not include
- Partial-year sales. If you sell, the year of sale also uses the mid-month convention and depreciation stops.
- Cost segregation and bonus depreciation, which move parts of the building into shorter lives.
- Personal use. A property you also use yourself is depreciated only for its rental share.
- The IRS table’s rounding. The calculator uses the exact formula; the IRS tables round percentages to three decimals, so results can differ by a few dollars.
- State rules, which sometimes differ from federal depreciation.
Depreciation is reported on Form 4562 and Schedule E. A tax professional can confirm the basis and land split for your property.