CashflowCalcs

Taxes

Rental Property Depreciation Calculator

Calculate annual and first-year depreciation with the mid-month convention.

Property
Depreciation settings
Estimates only, not tax advice. Rules and rates change; confirm with a tax professional.
Annual depreciation $0
Building value $0
Depreciable basis $0
First-year depreciation $0
Monthly depreciation $0

Calculation breakdown

ItemAmount

How rental property returns work

Depreciation is one of the biggest tax benefits of owning rental property. It lets you deduct a portion of the property cost each year as a non-cash expense, reducing your taxable rental income without spending a dollar. The IRS requires you to depreciate the building over a set recovery period: 27.5 years for residential rental property and 39 years for commercial property. Land is never depreciable — only the building and certain closing costs added to basis. To calculate depreciation, you first separate the building value from the land. The building value is the purchase price minus the land value. You then add any closing costs that are capitalized into basis (title fees, legal fees, survey, recording fees — but not loan origination points, which are amortized separately). This gives you the depreciable basis. The annual depreciation is the depreciable basis divided by the recovery period (27.5 or 39 years). In the year you place the property in service, the IRS requires the mid-month convention. This means you are treated as having started using the property in the middle of the month, regardless of the actual day. So if you placed the property in service in March, you get 9.5 months of depreciation that year (12 − 3 + 0.5). The formula is first-year depreciation = annual depreciation × (12 − month + 0.5) / 12. In subsequent years, you claim a full 12 months. The calculator also shows monthly depreciation — the annual amount divided by 12 — which is useful for estimating partial-year deductions if you buy mid-year or for monthly cash flow projections. Remember that depreciation reduces your basis in the property, which means a lower adjusted basis and potentially more taxable gain when you eventually sell. The IRS recaptures some of this benefit through depreciation recapture at sale.

Worked example

You buy a residential rental for $320,000. The land is worth $60,000, and you add $4,000 in closing costs to basis. You place the property in service in April (month 4).

Building value = $320,000 − $60,000 = $260,000. Depreciable basis = $260,000 + $4,000 = $264,000. Annual depreciation = $264,000 / 27.5 = $9,600 per year.

First-year depreciation (mid-month convention) = $9,600 × (12 − 4 + 0.5) / 12 = $9,600 × 8.5 / 12 = $9,600 × 0.7083 = $6,800. Monthly depreciation = $9,600 / 12 = $800. In year 2 and beyond, you claim the full $9,600 per year until the recovery period ends.

Frequently asked questions

Can I depreciate the land my rental sits on?

No. Land is never depreciable because it does not wear out or lose value. You must separate the building value from the land value and depreciate only the building. A common approach is to use the property tax assessment ratio or an appraisal to split the purchase price between land and building.

What is the mid-month convention?

The IRS requires the mid-month convention for residential and commercial rental property. It treats the property as placed in service in the middle of the month, regardless of the actual day. So if you start renting in April, you get 8.5 months of depreciation that year (12 − 4 + 0.5). In subsequent years, you claim a full 12 months.

What closing costs can I add to the depreciable basis?

You can add title fees, legal fees, survey costs, recording fees, and transfer taxes to the basis. Loan origination points are not added to the property basis — they are amortized separately over the life of the loan. The calculator lets you enter the total closing costs you are capitalizing into basis.

What is the difference between 27.5-year and 39-year depreciation?

Residential rental property is depreciated over 27.5 years, while commercial property is depreciated over 39 years. The distinction is based on the property use, not the building type. A single-family home used as a rental is residential (27.5 years); an office building or retail space is commercial (39 years). The calculator lets you select the property type.

Does depreciation reduce my basis when I sell?

Yes. Depreciation reduces your adjusted basis in the property, which means a lower basis and potentially more taxable gain when you sell. The IRS also recaptures the depreciation you took (or were required to take) at a maximum rate of 25% for unrecaptured Section 1250 gains. Use the Depreciation Recapture Calculator to estimate that tax.

More Taxes tools