1. What is Rental Property Depreciation?

Rental property depreciation is a tax deduction that allows property owners to recover the costs of income-producing properties over time. In the US, residential rental properties are depreciated over 27.5 years using the straight-line method.

2. How Does the Calculator Work?

The calculator uses the standard depreciation formula:

Where:

• Property Cost — Total purchase price of the property (USD)
• Land Value — Estimated value of the land portion (USD)
• 27.5 — IRS-defined depreciation period for residential rental property (years)

Explanation: Only the building value (property cost minus land value) can be depreciated, as land doesn't depreciate. The deduction is spread evenly over 27.5 years.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation helps reduce taxable income from rental properties, potentially saving thousands in taxes each year. It's a key component of real estate investment analysis.

4. Using the Calculator

Tips: Enter the total property purchase price and the estimated land value. Both values must be positive numbers, and the property cost must exceed the land value.

5. Frequently Asked Questions (FAQ)

Q1: Why 27.5 years?
A: This is the IRS-mandated depreciation period for residential rental properties in the US (27.5 years for residential, 39 years for commercial).

Q2: Can land value be depreciated?
A: No, only the building portion of the property can be depreciated. Land maintains its value indefinitely.

Q3: When does depreciation begin?
A: Depreciation starts when the property is placed in service as a rental, not when purchased.

Q4: What if I don't know the land value?
A: Check your property tax assessment or consult a local appraiser. Typically 15-25% of total value for single-family homes.

Q5: Is depreciation recaptured when selling?
A: Yes, when you sell, accumulated depreciation is "recaptured" and taxed at a maximum 25% rate (as of 2023).