How is rental property depreciation calculated?

Residential rental property is depreciated using straight-line depreciation over 27.5 years. Your annual deduction is: depreciable basis ÷ 27.5. The depreciable basis is the cost of the building only — not the land (land does not depreciate). For example, if you paid $350,000 for a rental property and the land is worth $75,000, the depreciable basis is $275,000 and the annual depreciation is $275,000 ÷ 27.5 = $10,000 per year. You also use the mid-month convention in the year of acquisition — regardless of what day of the month you closed, you treat the purchase as occurring at the midpoint of that month.

What happens to rental property depreciation when I sell?

When you sell a rental property, the IRS requires you to recapture the depreciation you claimed (or could have claimed) over the years. Depreciation recapture on real property is taxed at a maximum rate of 25% — this is the unrecaptured Section 1250 gain rate. For example, if you claimed $50,000 of depreciation over 5 years, $50,000 of your sale gain is taxed at up to 25% (not the 0%/15%/20% long-term capital gains rate). Remaining gain above the recaptured amount is taxed at regular long-term capital gains rates. Depreciation recapture cannot be avoided on a regular sale, though it can be deferred via a 1031 like-kind exchange.

Do I have to claim depreciation even if I do not want to?

For practical purposes, yes. IRS rules require you to reduce your rental property basis by depreciation 'allowed or allowable' — meaning even if you fail to claim depreciation deductions, the IRS still reduces your basis (and therefore increases your gain) as if you had claimed them. This means failing to claim depreciation costs you twice: you lose the current deduction AND still face recapture tax on the unclaimed amount when you sell. If you have been a rental owner and forgot to claim depreciation, you can file Form 3115 (Application for Change in Accounting Method) to catch up all missed depreciation in the current year.

Can I accelerate depreciation on a rental property?

Yes. A cost segregation study can identify components of a rental property that qualify for shorter depreciation lives (5 years, 7 years, or 15 years instead of 27.5 years). Items like carpeting, appliances, land improvements, and certain building components may qualify for 5- or 15-year depreciation. Under current law, these shorter-life components may also qualify for bonus depreciation, allowing you to deduct them in the first year rather than over 5-15 years. Cost segregation studies typically cost $5,000-$15,000 and are most beneficial for properties with purchase prices above $500,000.

Rental Property Depreciation 2026 — How to Calculate and Claim It on Schedule E

Depreciation is one of the most powerful tax benefits of owning rental property. It allows you to deduct the cost of a residential building over 27.5 years — generating a non-cash tax deduction each year that reduces your taxable rental income, often turning a profitable rental into a paper loss for tax purposes. A $300,000 building (excluding land) generates an $10,909 annual depreciation deduction every year for 27.5 years — without spending a single additional dollar. Understanding how to calculate, claim, and plan around depreciation (including the recapture tax at sale) is essential for every rental property owner.

Quick answer: Residential rental property: straight-line depreciation over 27.5 years. Only the building depreciates — not the land. Annual deduction = (purchase price − land value) ÷ 27.5. Claim on Schedule E, Part I. Mid-month convention in first and last year. Must deduct even if you do not want to — basis reduces whether you claim it or not. Recaptured at 25% when you sell. Use Form 3115 to catch up missed depreciation.

Calculating Your Depreciation Basis

The depreciable basis is the building value — not the total purchase price:

Step 1: Determine total cost basis

Item	Amount
Purchase price	$385,000
Closing costs (legal, title, recording)	$8,500
Improvements before placed in service	$12,000
Total cost basis	$405,500

Step 2: Allocate between land and building

Land does not depreciate. Determine the land-to-building ratio using:

Property tax assessment breakdown (most counties list land and improvement values separately)
Appraisal value allocation
IRS accepted reasonable allocation

Example:

Property tax assessment: Land = 20%, Building = 80%
Total basis: $405,500
Land basis: $405,500 × 20% = $81,100
Depreciable building basis: $405,500 × 80% = $324,400

Step 3: Calculate annual depreciation

$324,400 ÷ 27.5 years = $11,796 per year

The Mid-Month Convention

In the first year you place the property in service (and in the final year when you stop using it as a rental), you use the mid-month convention: the IRS treats you as placing the property in service at the midpoint of the month you actually did so, regardless of the specific day.

First-year depreciation (placed in service in September):

The property is treated as placed in service September 15. That is 3.5 months of the year remaining (September 15 through December 31 = 3.5 months out of 12).

First-year depreciation: $11,796 × (3.5 ÷ 12) = $3,440

IRS Publication 946 Table A-6 provides exact mid-month percentages by month for 27.5-year residential property. Tax software applies these automatically.

Year-by-Year Depreciation Schedule Example

Year	Annual Depreciation	Notes
2026 (placed in service Sept)	$3,440	Mid-month convention — partial year
2027	$11,796	Full year
2028	$11,796	Full year
… (years 2027–2052)	$11,796/year	Full years
2053 (27.5th year)	~$8,356	Partial final year
Total depreciated over life	$324,400	Full building basis recovered

What Can Be Depreciated Separately (Components)

Beyond the main building (27.5 years), certain components may qualify for shorter depreciation periods:

Component	Depreciation Life
Residential appliances (stoves, fridges)	5 years
Carpet and flooring	5 years
Landscaping and land improvements	15 years
Fences and paving	15 years
Land	Not depreciable
Building structure	27.5 years

When you buy appliances or make improvements to a rental property, these are depreciated separately (not over 27.5 years) using the appropriate class life. Appliances and carpet are 5-year property, which allows faster depreciation and potential bonus depreciation in the first year under current law.

Claiming Depreciation on Schedule E

Rental property depreciation is reported on Schedule E, Part I (Supplemental Income and Loss). Each rental property gets its own section of Schedule E:

Line 18: Depreciation expense and depletion
Attached is Form 4562 (Depreciation and Amortization) — tax software generates this automatically

In the first year of rental ownership, you need to provide:

Date placed in service
Cost or other basis
Land value (to calculate depreciable basis)
Business use percentage (100% for fully rented property; less for personal use periods)

After the first year, tax software carries forward the depreciation schedule automatically.

Depreciation Recapture at Sale: The 25% Tax

When you sell a rental property, depreciation claimed over the years is “recaptured” by the IRS and taxed at a maximum rate of 25% (regardless of your income tax bracket). This is reported as unrecaptured Section 1250 gain on Schedule D Line 19.

Example:

Item	Amount
Sale price	$550,000
Adjusted basis (cost − total depreciation claimed)	$279,500
Total gain	$270,500
Depreciation claimed over 7 years	$82,572
Unrecaptured Section 1250 gain (25% rate)	$82,572
Remaining long-term capital gain (15% or 20% rate)	$187,928

Tax calculation:

$82,572 × 25% = $20,643 (depreciation recapture tax)
$187,928 × 15% = $28,189 (capital gains tax)
Total tax on sale: $48,832

You cannot avoid recapture on an outright sale. However, a 1031 like-kind exchange defers both the regular capital gain AND the depreciation recapture indefinitely.

Catching Up Missed Depreciation: Form 3115

If you owned a rental property and failed to take depreciation (a common mistake), you must NOT simply start claiming depreciation going forward. The correct procedure is to file Form 3115 — Application for Change in Accounting Method — which allows you to deduct all missed depreciation in the current year as a “481(a) adjustment.” This is an IRS-approved procedure and avoids an amended return for each missed year.

Passive Activity Loss Rules — how rental losses offset income
Depreciation Recapture Tax Guide — detailed recapture tax calculation
Short-Term Rental Tax Rules — depreciation for Airbnb/STR properties
1031 Exchange Guide — defer recapture via like-kind exchange
Real Estate Investing Hub — all real estate investment guides

Depreciation is not optional — even if you fail to claim it, the IRS will reduce your basis and charge recapture tax as if you did. Claim depreciation every year, track your accumulated depreciation carefully, and consider a cost segregation study if the property cost more than $500,000.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

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