How Much Depreciation Can You Claim on a Rental Property?

Rental property depreciation on a residential building is calculated by dividing your cost basis (minus the land value) by 27.5 years, using the straight-line method. On a building with a depreciable basis of $240,000, that produces roughly $8,727 in annual deductions. Commercial rental property uses a 39-year schedule instead, which produces smaller yearly write-offs. The exact figure depends on how you acquired the property, what you’ve added to it, and what month you placed it in service.

What You Can Actually Depreciate

Four conditions have to be met before depreciation starts. You must own the property, use it to produce income, and the property must have a useful life longer than one year. The fourth is the one new landlords miss: it must be “placed in service,” meaning ready and available to rent, not necessarily occupied.¹ Buy a house in April, spend two months on repairs, list it in July, and depreciation begins in July.²

Land never gets depreciated. It doesn’t wear out, and the IRS won’t let you write it off. Your primary residence doesn’t qualify either. If you convert a home you lived in into a rental, depreciation starts on the conversion date, but the starting basis follows a different rule than a fresh purchase.

Setting Your Starting Basis

Property You Bought

Start with the purchase price on your closing disclosure. Add settlement costs that can’t be deducted immediately: title search fees, recording fees, transfer taxes, and survey charges get folded into the basis instead of expensed. Then subtract the value of the land.

Most owners split land from building using the property tax assessment, which already breaks out the two. A professional appraisal is an alternative when the assessment looks off. If you paid $300,000 and the land accounts for $60,000, your depreciable basis for the building is $240,000.

A Home You Converted to a Rental

When you turn a former residence into a rental, the depreciable basis is the lesser of the property’s fair market value or your adjusted basis on the conversion date.¹ This matters most when the home has lost value. If you paid $350,000 but the property is worth $280,000 the day it becomes a rental, $280,000 (minus land) is your starting point. An appraisal on the conversion date locks that number in.

Inherited or Gifted Property

Inherited property gets a stepped-up basis equal to its fair market value on the previous owner’s date of death.³ The depreciation clock resets. If the decedent paid $120,000 for a property worth $400,000 at death, the heir depreciates from $400,000 (minus land). Whatever the prior owner claimed doesn’t matter.

Gifted property is different. You generally carry over the donor’s adjusted basis for calculating future gain, and you inherit the donor’s depreciation history along with it.⁴ What’s left to depreciate is what the donor hadn’t already deducted.

Recovery Periods

The Building

Residential rental property has a 27.5-year recovery period. Nonresidential (commercial) real property has a 39-year recovery period. Both use straight-line, meaning the same annual deduction every full year.⁵ A building counts as residential if at least 80% of its gross rental income comes from dwelling units.¹ Houses, duplexes, and apartment buildings usually qualify. A mixed-use building where a ground-floor shop generates more than 20% of the rental income falls under the 39-year commercial timeline.

Everything Else

Components inside and around the building have their own, shorter schedules:

5-year property: appliances such as stoves and refrigerators, carpeting, and furniture used in a residential rental.¹
7-year property: office furniture and equipment like desks, file cabinets, and safes.²
15-year property: land improvements such as fences, sidewalks, driveways, and landscaping.²

Separating these items from the building and putting each on its own schedule pushes more of your total deduction into the early years. A $2,000 refrigerator on the 5-year schedule generates a $400 annual deduction. Lump it into the building at 27.5 years and it produces about $73. First-time landlords often miss this entirely.

Bonus Depreciation

The One Big Beautiful Bill Act permanently restored 100% first-year bonus depreciation for qualified property acquired after January 19, 2025.⁶ Eligible property can be deducted in full the year it’s placed in service instead of spread over 5, 7, or 15 years. Bonus depreciation applies to tangible property with a recovery period of 20 years or less, so appliances, carpeting, furniture, and fencing all qualify.⁷

The building itself doesn’t qualify; its 27.5- or 39-year recovery period is over the 20-year cutoff. This is where a formal cost segregation study earns its cost. An engineer examines the property and reclassifies components (countertops, specialty electrical work, decorative fixtures, certain plumbing) into 5-year or 15-year classes that become eligible for a full first-year write-off.

Doing the Math

Straight-Line Calculation

Divide the depreciable basis by the recovery period. A residential rental with a $220,000 building basis produces an annual deduction of $8,000 ($220,000 ÷ 27.5). A commercial property with the same basis produces $5,641 ($220,000 ÷ 39). That number stays flat every full year the property is in service until the basis is fully recovered.⁵

The Mid-Month Convention for Year One

You don’t get a full year’s deduction in the year you buy or the year you sell. The IRS uses the mid-month convention: whatever month you place the property in service, you’re treated as starting at the midpoint of that month.² Place a residential rental in service on March 3 and you get half of March plus April through December, or 9.5 months. Your first-year deduction is 9.5/12 of the annual amount. The same math applies to the year of sale.

Using the $220,000 residential building placed in service in March: $8,000 × (9.5 ÷ 12) = $6,333 for the first year. Every subsequent full year yields the standard $8,000 until the basis is exhausted or the property is sold.

Where It Goes on the Return

Rental depreciation is reported on IRS Form 4562. Property placed in service during the current year goes on Line 19i (residential) or Line 19j (commercial). Assets you started depreciating in prior years carry forward on Line 17.⁸ Totals flow to Schedule E, where they offset rental income.

Capital Improvements Start Their Own Schedules

Routine repairs like patching drywall or fixing a leaky faucet are deducted in the year paid. Capital improvements are treated differently. A new roof, a full HVAC replacement, or a new bedroom adds value, extends useful life, or adapts the property to a new use. The cost is capitalized and depreciated over its own recovery period, starting the date the work is placed in service.¹

A new roof on a residential rental runs on its own 27.5-year schedule alongside the original building. A new fence runs 15 years. New appliances, 5 years. Over time a well-maintained property carries a stack of overlapping schedules, each adding to your annual deduction. Keeping clean records of every improvement with its completion date and cost is the only way to keep the numbers straight year after year.

Loss Limits That Cap What You Can Use

Depreciation often turns a rental into a paper loss. Rental income is passive, though, and passive losses generally can’t offset wages, business profits, or investment income.⁹

There’s a carve-out for landlords who actively participate: making decisions about tenants, approving repairs, and setting rent terms usually qualifies, as long as you own at least 10% of the property. Meet that standard and you can deduct up to $25,000 of rental losses against nonpassive income each year.⁹

The $25,000 allowance phases out once modified adjusted gross income passes $100,000, dropping 50 cents for every dollar over the threshold, and disappearing entirely at $150,000.⁹ Married taxpayers filing separately who lived together during the year get no allowance. Losses you can’t use don’t vanish; they carry forward against future passive income and become fully deductible in the year you sell the property.

What Happens to Depreciation When You Sell

Depreciation lowers your taxable income during ownership, and the IRS takes some of that back when you sell. The total you claimed is taxed as unrecaptured Section 1250 gain at a maximum federal rate of 25%, higher than the long-term capital gains rate most taxpayers pay on the rest of the profit.¹⁰

The trap: recapture is calculated on depreciation “allowed or allowable,” whichever is greater.² If you owned a rental for ten years and never claimed a dollar, the IRS still reduces your basis by the full amount you were entitled to deduct, and you owe recapture on depreciation you never used.¹¹ Skipping depreciation just means paying more tax during ownership and getting the same bill anyway. Claim it every year you’re entitled to.

1
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
2
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
3
Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
4
Internal Revenue Service. Property (Basis, Sale of Home, etc.)
5
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
6
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
7
Internal Revenue Service. IRS Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction
8
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization
9
Internal Revenue Service. Publication 925 (2025), Passive Activity and At-Risk Rules
10
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
11
Office of the Law Revision Counsel. 26 U.S. Code 1016 – Adjustments to Basis