Question 1

Why is residential rental property depreciated over 27.5 years?

Accepted Answer

The 27.5-year recovery period was established by the Tax Reform Act of 1986 as the IRS estimate of the useful life of residential rental buildings. Congress chose this period to balance the tax benefit to property owners against revenue concerns. All residential rental property placed in service after 1986 uses this recovery period.

Question 2

How do I calculate 27.5 year depreciation?

Accepted Answer

Divide the building's depreciable basis (purchase price minus land value) by 27.5 years. For the first and last years, use the mid-month convention — you get half a month of depreciation for the month the property is placed in service. For example, a $275,000 building generates $10,000 per year in depreciation ($275,000 / 27.5).

Question 3

What qualifies as residential rental property for 27.5 years?

Accepted Answer

A building qualifies for the 27.5-year period if 80% or more of its gross rental income comes from dwelling units. This includes single-family homes, duplexes, apartments, and condominiums rented to tenants. It does not include hotels, motels (unless rented long-term), or your primary residence.

Question 4

Can I use accelerated depreciation on residential rental property?

Accepted Answer

The building structure itself must use straight-line depreciation over 27.5 years. However, certain building components (appliances, carpeting, landscaping, fencing) can be depreciated over 5, 7, or 15 years using accelerated methods. A cost segregation study identifies these components and can significantly increase early-year deductions.

Question 5

What happens after the 27.5 year depreciation period ends?

Accepted Answer

After 27.5 years, the building's depreciable basis is fully recovered and no further depreciation can be claimed. The building's tax basis becomes its salvage value (typically zero for buildings). If you continue to rent the property, you can still deduct operating expenses and depreciation on any new improvements made after the original period ends.

27.5 Year (Residential)

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27.5 Year (Residential)

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27.5 Year (Residential)

Asset Details

Quick Guide

Frequently Asked Questions

1Why is residential rental property depreciated over 27.5 years?

2How do I calculate 27.5 year depreciation?

3What qualifies as residential rental property for 27.5 years?

4Can I use accelerated depreciation on residential rental property?

5What happens after the 27.5 year depreciation period ends?

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27.5 Year (Residential)

Asset Details

Quick Guide

Frequently Asked Questions

1Why is residential rental property depreciated over 27.5 years?

2How do I calculate 27.5 year depreciation?

3What qualifies as residential rental property for 27.5 years?

4Can I use accelerated depreciation on residential rental property?

5What happens after the 27.5 year depreciation period ends?

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