What is the depreciation period for residential rental property?

Residential rental property is depreciated over 27.5 years using the straight-line method with a mid-month convention.

Can I depreciate land?

No, land is never depreciable. Only the building and improvements can be depreciated. You must allocate your purchase price between land and building.

What is depreciation recapture?

When you sell a rental property, the IRS requires you to pay tax on all depreciation you claimed (or could have claimed) at a rate of 25% under Section 1250.

Real Estate Depreciation: Complete Tax Guide

Real estate depreciation is one of the most powerful tax benefits available to property owners and investors. Learn how to maximize your deductions legally.

Fundamental Rules

The Golden Rule

• Only the BUILDING can be depreciated
• Land is NEVER depreciable
• You must separate land value from building value

Residential Property

• Recovery Period: 27.5 years
• Method: Straight Line
• Convention: Mid-Month
• Qualification: 80%+ rental income from dwelling units

Commercial Property

• Recovery Period: 39 years
• Method: Straight Line
• Convention: Mid-Month
• Includes: Office, retail, warehouse, etc.

When Depreciation Starts

• Begins when property is "placed in service"
• Not purchase date, but ready-to-rent date
• Must be held for income production

Land vs Building Allocation Methods

Method	Reliability	Cost	How To
Independent Appraisal	High	$300-500+	Hire certified appraiser
County Tax Assessment	Medium	Free	Check property tax records for land/improvement split
Industry Standard	Low	Free	Use 75-85% building allocation (may be challenged)

Note: IRS may challenge unreasonable allocations that maximize building value.

Advanced Tax Strategies

Strategy	Benefit	Complexity	When to Use
Standard Depreciation	Steady deductions	Low	All rental properties
Cost Segregation	Accelerate 20-40% to 5/7/15-year	High	Properties $500K+
Bonus Depreciation*	20% year-1 deduction (2026)	Medium	With cost segregation
1031 Exchange	Defer all gains and recapture	High	Selling to buy larger property

*Bonus Depreciation phase-out: 80% (2023) → 60% (2024) → 40% (2025) → 20% (2026) → 0% (2027+)

Passive Activity Loss (PAL) Rules

• Rental income is generally "passive income"
• $25,000 Special Allowance: AGI under $100,000 can deduct rental losses against active income
• Phase-out: $100K-$150K AGI - allowance reduces $1 for every $2 over $100K
• Real Estate Professional Exception: 750+ hours AND more than half of personal services in real estate
• Reference: IRS Publication 925

Depreciation Recapture Warning

Important: Recapture Tax When Selling

• When you sell, ALL depreciation claimed (or allowed) is recaptured
• Taxed at 25% under Section 1250 (higher than capital gains)
• You CANNOT avoid this by not claiming depreciation—IRS assumes you did
• Strategy: Use 1031 Exchange to defer recapture indefinitely

Detailed Guides

Rental Property Tax Guide

Maximizing tax deductions for residential rental investments.

Cost Segregation Deep Dive

Coming Soon

How cost segregation studies accelerate depreciation.

1031 Exchange Guide

Coming Soon

Deferring capital gains and depreciation recapture.

Commercial Property Depreciation

Coming Soon

39-year depreciation for office, retail, and industrial properties.

Calculate Your Property Depreciation

Use our Real Estate Calculator to compute your annual depreciation deduction.

Sources & References

Last updated: January 2026. Tax laws change frequently - consult a qualified CPA for your specific situation.

Fundamental Rules

The Golden Rule

• Only the BUILDING can be depreciated
• Land is NEVER depreciable
• You must separate land value from building value

Residential Property

• Recovery Period: 27.5 years
• Method: Straight Line
• Convention: Mid-Month
• Qualification: 80%+ rental income from dwelling units

Commercial Property

• Recovery Period: 39 years
• Method: Straight Line
• Convention: Mid-Month
• Includes: Office, retail, warehouse, etc.

When Depreciation Starts

• Begins when property is "placed in service"
• Not purchase date, but ready-to-rent date
• Must be held for income production

Land vs Building Allocation Methods

Method	Reliability	Cost	How To
Independent Appraisal	High	$300-500+	Hire certified appraiser
County Tax Assessment	Medium	Free	Check property tax records for land/improvement split
Industry Standard	Low	Free	Use 75-85% building allocation (may be challenged)

Note: IRS may challenge unreasonable allocations that maximize building value.

Advanced Tax Strategies

Strategy	Benefit	Complexity	When to Use
Standard Depreciation	Steady deductions	Low	All rental properties
Cost Segregation	Accelerate 20-40% to 5/7/15-year	High	Properties $500K+
Bonus Depreciation*	20% year-1 deduction (2026)	Medium	With cost segregation
1031 Exchange	Defer all gains and recapture	High	Selling to buy larger property

*Bonus Depreciation phase-out: 80% (2023) → 60% (2024) → 40% (2025) → 20% (2026) → 0% (2027+)

Passive Activity Loss (PAL) Rules

• Rental income is generally "passive income"
• $25,000 Special Allowance: AGI under $100,000 can deduct rental losses against active income
• Phase-out: $100K-$150K AGI - allowance reduces $1 for every $2 over $100K
• Real Estate Professional Exception: 750+ hours AND more than half of personal services in real estate
• Reference: IRS Publication 925

Depreciation Recapture Warning

Important: Recapture Tax When Selling

• When you sell, ALL depreciation claimed (or allowed) is recaptured
• Taxed at 25% under Section 1250 (higher than capital gains)
• You CANNOT avoid this by not claiming depreciation—IRS assumes you did
• Strategy: Use 1031 Exchange to defer recapture indefinitely

Detailed Guides

Rental Property Tax Guide

Maximizing tax deductions for residential rental investments.

Cost Segregation Deep Dive

Coming Soon

How cost segregation studies accelerate depreciation.

1031 Exchange Guide

Coming Soon

Deferring capital gains and depreciation recapture.

Commercial Property Depreciation

Coming Soon

39-year depreciation for office, retail, and industrial properties.