Question 1

How do I calculate depreciation on an investment property?

Accepted Answer

First, determine the building's depreciable basis by subtracting the land value from the total purchase price. Then divide the building value by 27.5 years (residential) or 39 years (commercial) using the straight-line method. For example, a $300,000 rental home with $75,000 in land value has a depreciable basis of $225,000, giving an annual deduction of $8,182.

Question 2

Can I depreciate land on an investment property?

Accepted Answer

No. Land is never depreciable because it does not wear out or become obsolete. You must separate the land value from the building value. Common methods include using the property tax assessment ratio (e.g., if the county assesses 80% building and 20% land) or getting an independent appraisal.

Question 3

When does depreciation start on a rental property?

Accepted Answer

Depreciation begins when the property is 'placed in service' — meaning it is ready and available for rent, not when you actually find a tenant. If you purchase a rental property on March 15 and list it for rent immediately, depreciation starts in March. The mid-month convention applies, so you get half a month of depreciation for the first month.

Question 4

What happens to depreciation when I sell the property?

Accepted Answer

When you sell, you must 'recapture' the depreciation you claimed (or could have claimed). This recaptured depreciation is taxed at a maximum rate of 25% under Section 1250. For example, if you claimed $50,000 in depreciation over your ownership period, you will owe up to $12,500 in recapture tax, plus capital gains tax on any remaining profit.

Question 5

Should I use cost segregation for my investment property?

Accepted Answer

Cost segregation studies can accelerate depreciation by identifying components of the property that qualify for shorter recovery periods (5, 7, or 15 years instead of 27.5 or 39). This is most beneficial for properties worth $500,000+ where the study cost ($5,000-$15,000) is justified by the tax savings. It can generate significant first-year deductions.

Question 6

Can I depreciate improvements to an investment property?

Accepted Answer

Yes. Capital improvements (new roof, HVAC system, kitchen remodel) are depreciated separately from the original building. Improvements to residential rental property use a 27.5-year life, while commercial improvements may qualify as Qualified Improvement Property (QIP) with a 15-year life. Repairs and maintenance are deductible immediately as expenses.

Investment Property

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Investment Property

Asset Details

Quick Guide

Frequently Asked Questions

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Investment Property

Asset Details

Quick Guide

Frequently Asked Questions

1How do I calculate depreciation on an investment property?

2Can I depreciate land on an investment property?

3When does depreciation start on a rental property?

4What happens to depreciation when I sell the property?

5Should I use cost segregation for my investment property?

6Can I depreciate improvements to an investment property?

Related Calculators

Investment Property

Asset Details

Quick Guide

Frequently Asked Questions

1How do I calculate depreciation on an investment property?

2Can I depreciate land on an investment property?

3When does depreciation start on a rental property?

4What happens to depreciation when I sell the property?

5Should I use cost segregation for my investment property?

6Can I depreciate improvements to an investment property?

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