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Calculate depreciation for Residential (27.5y) and Commercial (39y) real estate.
Separating Land: You can use the property tax assessment ratio to determine the land value %.
Convention: Real estate uses the Mid-Month Convention (deduct half-month in first month).
For real estate investors, depreciation is often the most significant tax advantage of owning rental property. It is a non-cash expense that allows you to deduct the cost of the building (but not the land) over time, often creating a "paper loss" that shields your rental income from taxation.
The IRS differentiates between two main types of rental real estate, each with its own recovery period under the MACRS (Modified Accelerated Cost Recovery System):
A common mistake among new landlords is trying to depreciate the entire purchase price of a property. **The IRS forbids the depreciation of land**, as land is not considered to wear out or become obsolete. You must allocate your purchase price between the building and the land.
The most common method is using the **Property Tax Assessor's Ratio**. For example, if your assessor values the land at $50,000 and the building at $150,000, 25% of your purchase price should be allocated to land. If you bought the property for $300,000, your depreciable basis would be $225,000 ($300,000 * 75%).
While the building takes decades to depreciate, many items *inside* the building can be written off much faster. A **Cost Segregation Study** identifies personal property and land improvements that can be depreciated over 5, 7, or 15 years.
Example: Carpeting, kitchen appliances, and specialty lighting are 5-year assets. Fencing and driveways are 15-year assets. By reclassifying these, you can front-load your tax benefits.
2025 Update: Under the OBBBA, 100% Bonus Depreciation is back. This means any 5 or 15-year assets identified in a cost segregation study for a property acquired after January 19, 2025, can be **fully deducted in the first year**.
While depreciation is great for cash flow today, it has a "catch" called **Depreciation Recapture** when you sell the property. The IRS treats the total depreciation you claimed (or *should* have claimed) as ordinary income, taxed at a maximum rate of 25%. Many investors use **1031 Exchanges** to defer this tax indefinitely by rolling their gains into a new investment property.
Some landlords choose not to claim depreciation to avoid recapture tax later. **This is a mistake.** The IRS requires you to pay recapture tax on the "allowed or allowable" depreciation. If you don't claim it now, you'll still pay for it when you sell. Our calculator helps you ensure you are getting the full benefit you are legally entitled to.
Tax & Accounting Experts
Last reviewed: March 2026
Our editorial team includes tax professionals and financial analysts who review every calculator and guide for accuracy. All content is cross-referenced with IRS Publication 946 and current tax legislation.