Real Estate Depreciation Calculator
Calculate your annual IRS depreciation deduction for a residential investment property. Useful for landlords and investors reducing taxable rental income each year.
About this calculator
The IRS requires residential rental property to be depreciated using the Modified Accelerated Cost Recovery System (MACRS) over a 27.5-year straight-line schedule. The annual deduction is: Depreciation = (Property Value − Land Value + Capital Improvements) / 27.5. Land is excluded because it does not wear out. Capital improvements — such as a new roof or HVAC system — are added to the depreciable basis because they extend the property's useful life. This deduction offsets ordinary rental income dollar-for-dollar, making it one of the most powerful tax benefits available to real estate investors. Note that commercial property uses a 39-year schedule instead of 27.5 years.
How to use
Assume you buy a duplex for $350,000. An appraiser allocates $60,000 to land, leaving $290,000 for the structure. You also spend $15,000 on a new roof shortly after purchase. Depreciable basis = ($350,000 − $60,000) + $15,000 = $305,000. Annual depreciation = $305,000 / 27.5 = $11,091 per year. If your marginal tax rate is 24%, this deduction saves you approximately $11,091 × 0.24 ≈ $2,662 in federal taxes annually — roughly $73,000 over the full 27.5-year recovery period.
Frequently asked questions
Why is land excluded from real estate depreciation calculations?
The IRS only allows depreciation on assets that wear out, deteriorate, or become obsolete over time. Land itself does not physically degrade, so it retains its value indefinitely and cannot be depreciated. When you purchase a property, you must allocate the purchase price between land and improvements. This split is typically supported by a property tax assessment, an independent appraisal, or a cost-segregation study. Overstating the land value artificially reduces your deductible basis, while understating it may trigger IRS scrutiny.
What happens to accumulated depreciation when I sell a rental property?
When you sell a rental property, the IRS recaptures all depreciation you have claimed through a process called depreciation recapture. The recaptured amount is taxed at a maximum rate of 25% under Section 1250, separate from the standard long-term capital gains rate. For example, if you claimed $100,000 in depreciation over the years, up to $25,000 in additional taxes may be owed at sale. Executing a 1031 like-kind exchange is one strategy investors use to defer both capital gains taxes and depreciation recapture.
Can I accelerate depreciation on a rental property with a cost segregation study?
Yes. A cost segregation study is an engineering analysis that reclassifies building components — such as carpeting, lighting, and land improvements — into shorter depreciation categories of 5, 7, or 15 years rather than 27.5 years. This front-loads deductions, significantly improving after-tax cash flow in the early years of ownership. Cost segregation is most beneficial for properties valued over $500,000 and for investors in higher tax brackets. The study typically costs $5,000–$15,000 but can generate tens of thousands in near-term tax savings.