Rental Property Depreciation Explained, With Examples (2026)

Depreciation is the rental deduction most landlords understand least and undervalue most. The IRS will not let you deduct a rental building’s cost the year you buy it. Instead, you deduct a slice of it every year for decades. No money leaves your account for that slice, but it still lowers your taxable rental income.

It adds up. In the example below, a $250,000 rental produces about $7,417 of depreciation a year. In the 22% bracket, that is roughly $1,630 less tax each year for a cost you already paid. (Illustrative only: the passive loss rules can delay the benefit if your rental shows a loss.)

This guide explains rental property depreciation in plain English: what you can depreciate, how to figure the yearly amount, a complete worked example using the IRS’s own percentage table, and what happens when you sell.

For the full list of rental write-offs, see our rental property tax deductions checklist. This post is the deep dive on one line of it.

Rental property depreciation at a glance

What you can depreciate, and what you can’t

You can depreciate property you own, use in your rental activity, and expect to last more than a year.

The building: yes

The house, duplex, or condo itself is residential rental property. Under the general depreciation system (GDS), it is recovered over 27.5 years using the straight-line method and the mid-month convention, according to IRS Publication 527. Some landlords must use, or choose, the alternative depreciation system (ADS), which stretches the same property over 30 years, or 40 years for some rentals placed in service before 2018. Most small landlords use the 27.5-year schedule.

Land: no

Land never wears out, so the IRS does not let you depreciate it. Depreciating the full purchase price, lot included, is a costly mistake. Split your cost between land and building and depreciate only the building.

Things inside and around the building: yes, on shorter schedules

Shorter-lived items get shorter recovery periods. Publication 527 lists them in Table 2-1:

Repairs are different: you deduct them in full the year you pay. Our rental deductions checklist explains where the line between a repair and an improvement falls.

Step 1: Figure your depreciable basis

Your basis is the amount you depreciate. For a property you bought, start with the purchase price and add certain closing costs. IRS Publication 551 says you can include settlement fees and closing costs for buying the property, such as:

• Legal fees, including title search and preparing the sales contract and deed
• Recording fees
• Surveys
• Transfer taxes
• Owner’s title insurance
• Amounts the seller owed that you agreed to pay, such as back taxes

You cannot include costs of getting the loan, such as points or loan origination fees. Those follow different rules.

Splitting land from building

The IRS says to divide your cost in proportion to the fair market value of the land and the building when you bought them. If you are not sure of those values, Publication 527 says you can use the ratio from your property tax assessment. Many assessments show separate values for land and improvements.

For example, if your assessment values the land at $45,000 and the whole property at $225,000, land is 20% of the total. You would treat 20% of your cost as land and depreciate the other 80%.

If you turned your own home into a rental

Your depreciation basis is the lesser of your adjusted basis (roughly, what you paid plus improvements) or the fair market value on the day it became a rental. If your home has gone up in value, that usually means you depreciate what you paid, not today’s price. Our guide to converting your home to a rental property walks through the rest of the tax changes that happen that day.

Step 2: Know when the depreciation clock starts

Depreciation begins when the property is placed in service. Publication 527 defines that as when it is ready and available for rent. Not the day you closed, and not the day a tenant moved in.

If you close in April, spend six weeks painting, and list the property on June 10, it was placed in service in June. If it sits empty but advertised all summer, it is still in service from June.

Residential rentals use the mid-month convention. The IRS treats the property as placed in service in the middle of the month, no matter which day it actually happened. So a June start gives you five and a half months of depreciation in year one.

Depreciation stops when you have deducted your entire basis or retire the property from service, for example by selling it, whichever comes first.

Step 3: Apply the 27.5-year table (worked example)

The IRS publishes the exact percentages in Table A-6 of Publication 946. Here is a complete example. The numbers are illustrative; use your own closing statement and assessment.

The first year is smaller because the property was only in service for part of it. From year two on, you deduct about $7,417 every year until the building is fully depreciated. Table A-6 alternates between 3.636% and 3.637% in the later years, so the yearly amount shifts by a dollar or two.

First-year percentage by month placed in service

Here is the full first-year row of Table A-6, applied to the same $204,000 building:

Notice the December row: half a month of depreciation for the whole year. Never list a property before it is truly ready just to start the clock.

Keeping basis, closing costs, and improvements straight for every property is where spreadsheets fall apart. PropertyCtrl keeps each rental’s purchase details, expenses, and improvement costs in one place, so the numbers are ready when you or your tax preparer need them. Try it free for 14 days — no credit card required.

Improvements, appliances, and bonus depreciation

Each improvement you make is depreciated as its own item, starting in the month it is placed in service. It does not restart or change the building’s schedule.

Example: a new roof

Say you replace the roof for $12,000 and the work is finished in March of a later year. A roof is an improvement to the building, so it uses the same 27.5-year schedule. Year one is $12,000 × 2.879% = $345.48. Each full year after that is $12,000 × 3.636% = $436.32.

Example: a new refrigerator

Appliances are 5-year property. But you may not have to spread them out at all. The One Big Beautiful Bill Act restored the 100% special depreciation allowance (often called bonus depreciation) for qualified property acquired and placed in service after January 19, 2025. Publication 946 says qualified property includes tangible property with a recovery period of 20 years or less. Appliances, carpet, furniture, and fences fit. The building itself, at 27.5 years, does not.

So a $1,400 refrigerator bought and installed this year can generally be deducted in full in year one. You can elect out of the special allowance if spreading the deduction suits you better. Items that cost $2,500 or less may also be expensed right away under the de minimis safe harbor covered in our deductions checklist.

What about Section 179?

Section 179 is another way to expense some items immediately, but Publication 946 caps it at your taxable income from the active conduct of a trade or business, a standard many small rental activities do not clearly meet. Bonus depreciation or the de minimis safe harbor is usually simpler. Ask a tax professional before relying on Section 179.

Depreciation recapture: what happens when you sell

Depreciation is not a permanent tax break. It is closer to a deferral. When you sell, the depreciation you took lowers your basis, which raises your taxable gain. The part of your gain that comes from depreciating the building is called unrecaptured section 1250 gain, and IRS Topic 409 says it is taxed at a maximum 25% rate.

Using the example above: after about ten years you would have claimed roughly $70,000 of depreciation. If you sell at a gain, up to that $70,000 of the gain may be taxed at up to 25%, with the rest taxed at regular long-term capital gains rates.

That 25% cap applies to the building. Appliances, furniture, carpet, and other shorter-lived items are section 1245 property, and IRS Publication 544 says gain on them is treated as ordinary income up to the depreciation you took. Keep that in mind if you wrote them off in year one with bonus depreciation.

Here is the part that surprises people. Skipping depreciation does not avoid recapture. Publication 527 says you must reduce your basis by the depreciation you could have deducted, even if you never claimed it. The IRS calls this “allowed or allowable.” Skip it and you lose the yearly deduction, but your basis still drops, so that depreciation can still be taxed if you sell at a gain. Always take it.

Our guide to capital gains tax on real estate explains the full picture at sale, and a 1031 exchange is one way some landlords defer both capital gains and recapture by reinvesting in another property.

Missed depreciation? How to fix it

Plenty of accidental landlords never claimed depreciation. The fix depends on how long it has been.

• You missed one year. You can generally file an amended return for that year. Publication 946 says it must be filed by the later of 3 years from when you filed the original return or 2 years from when you paid the tax.
• You missed two or more years in a row. The IRS treats that as an accounting method you adopted. To change it, you file Form 3115, Application for Change in Accounting Method.

The good news about Form 3115: Publication 946 says you can make a section 481(a) adjustment for the depreciation you never claimed, and a negative adjustment like this is taken into account in the year of change. In plain English, you can usually catch up all the missed depreciation on your current return instead of amending every old one.

Form 3115 is technical. This is a job for a tax professional.

Where depreciation goes on your tax return

Rental depreciation is reported on Schedule E (Form 1040), line 18, in the column for each property. In the first year a property or improvement is placed in service, you generally also file Form 4562, Depreciation and Amortization. The Form 4562 instructions require it when you claim depreciation for property placed in service during the tax year.

Keep your closing statement, the assessment you used to split land and building, and receipts for every improvement for as long as you own the property, plus several years after you sell. You will need all of it to figure your gain.

Your depreciation is only as good as your records. PropertyCtrl tracks rent, expenses, and improvements for each property, so you are not digging through old emails for a 2019 roof invoice at tax time. If you are still using a spreadsheet, our landlord spreadsheet template shows what to track. When you are ready to stop maintaining it by hand, start a free 14-day trial. No credit card needed.

Frequently Asked Questions

Is depreciation on rental property mandatory?

In practice, yes. The IRS requires you to reduce your basis by the depreciation that was allowable, whether or not you claimed it. So if you skip it, you give up the yearly deduction, and if you later sell at a gain you can still owe tax on that depreciation. There is no benefit to skipping it.

How many years do you depreciate a rental property?

A residential rental building is depreciated over 27.5 years under the general depreciation system. Under the alternative depreciation system, it is 30 years, or 40 years for some rentals placed in service before 2018. Appliances, carpet, and furniture use 5 years, and fences and shrubbery use 15 years.

Can you depreciate land on a rental property?

No. Land does not wear out, so it cannot be depreciated. You must split your purchase cost between land and building and depreciate only the building. If you do not know the market values, you can use the land-to-total ratio from your property tax assessment.

How do I calculate depreciation on a house I converted to a rental?

Use the lesser of your adjusted basis or the fair market value on the date you converted it, minus the land portion. Then apply the 27.5-year table starting from the month the house was ready and available to rent. If the home gained value while you lived in it, you usually depreciate your original cost, not the current value.

What if I forgot to claim depreciation for several years?

If you missed two or more consecutive years, you generally fix it by filing Form 3115 to change your accounting method. That usually lets you claim the missed depreciation on your current return rather than amending each prior year. If you missed only one year, an amended return may work instead. Either way, talk to a tax professional before filing.

This article is for informational purposes only and is not legal or tax advice. Laws change and vary by city and county — consult a licensed attorney or tax professional in your state for advice on your situation.