Rental Property & Real Estate Depreciation Calculator
Calculate IRS MACRS depreciation for residential rental (27.5-year) and commercial (39-year) property with the correct mid-month convention, partial first-year deduction, and improvements tracking — all exportable for Schedule E and Form 4562.
Property Details
Land is never depreciable (IRS rule)
Affects partial-year first deduction (mid-month convention)
Depreciation Recapture Estimator (Section 1250)
Estimate the tax impact when you sell — depreciation recapture is taxed at up to 25%.
How to Calculate Rental Property Depreciation — The Formula
The IRS requires rental property to be depreciated using the straight-line method under MACRS over either 27.5 years (residential rental) or 39 years (commercial). No salvage value is assumed — the full depreciable basis is written off over the recovery period.
Rental Property Depreciation Formula
Depreciable Basis = Purchase Price − Land Value
Annual Depreciation = Depreciable Basis ÷ Recovery Period
Year 1 Deduction = Annual Depr × ((12 − Month + 0.5) ÷ 12) ← mid-month convention
Accumulated Depreciation (Year n) = Σ Annual Deductions Years 1–n
Ending Book Value = Depreciable Basis − Accumulated Depreciation
Depreciable Basis = $350,000 − $60,000 = $290,000
Annual Depreciation = $290,000 ÷ 27.5 = $10,545.45/yr
Year 1 (March) = $10,545.45 × (12 − 3 + 0.5) ÷ 12 = $10,545.45 × 0.7917 = $8,348.48
Real Property Depreciation Rules — Rates & Recovery Periods
| Property Type | GDS Life | ADS Life | Annual Rate | Method | Examples |
|---|---|---|---|---|---|
| Residential Rental | 27.5 yrs | 30 yrs | 3.636% | Straight Line | Single-family rentals, apartments, condos |
| Nonresidential (Commercial) | 39 yrs | 40 yrs | 2.564% | Straight Line | Office buildings, retail, warehouses |
| Qualified Improvement Property (QIP) | 15 yrs | 20 yrs | 6.667% | 150% DB / SL | Interior improvements to nonresidential buildings |
| Land Improvements | 15 yrs | 20 yrs | 5.000% | 150% DB / SL | Landscaping, parking lots, fences |
| Residential Appliances / Carpeting | 5 yrs | 9 yrs | 20.000% | 200% DB / SL | Stoves, refrigerators, carpet (cost segregation) |
Source: IRS Publication 946. QIP is eligible for 100% bonus depreciation (subject to TCJA phase-down). Always consult a tax professional for cost segregation studies.
Real Estate Depreciation Tax Benefits
Depreciation Tax Shield
Each year's depreciation deduction reduces your taxable rental income by the same amount, creating a tax shield even when the property generates positive cash flow. At a 32% marginal rate, a $10,545 deduction saves $3,374 in taxes annually.
Cost Segregation Study
An IRS-approved engineering analysis reclassifies interior fixtures, carpeting, appliances, and site improvements into 5-, 7-, and 15-year classes. This accelerates depreciation significantly in early years — often producing 5× the first-year deduction of standard 27.5-year depreciation.
Passive Activity Loss Rules
Rental depreciation is a passive loss. Active-participation landlords with AGI under $100,000 may deduct up to $25,000 of rental losses against ordinary income. The allowance phases out between $100,000 and $150,000 AGI. Real estate professionals (750+ hours/year) have no passive loss limit.
1031 Exchange — Defer Recapture
A Section 1031 like-kind exchange lets you sell one investment property and acquire another without triggering depreciation recapture or capital gains tax. You carry forward the accumulated depreciation to the replacement property, deferring the Section 1250 tax indefinitely.
Schedule E & IRS Form 4562 — Reporting Requirements
Rental property owners must report depreciation on two IRS forms annually:
Schedule E (Form 1040)
Report all rental income and expenses including depreciation on Schedule E. Line 18 is specifically for depreciation expense. Net profit or loss flows to Form 1040 Line 5.
Form 4562
Required in the first year the property is placed in service, and any year you add improvements or claim Section 179 or bonus depreciation. Part III covers MACRS deductions for current and prior-year assets.
⚠️ Depreciation Hub provides educational calculation tools only. Consult a licensed CPA or tax attorney for filing guidance and depreciation strategy.