How long do you depreciate a rental property?

Residential rental property is depreciated over 27.5 years using the MACRS straight-line method, per IRC §168 and IRS Publication 527. Commercial property is 39 years (or 31.5 for property placed in service before May 13, 1993).

The 27.5-year recovery period for residential rental was set by the Tax Reform Act of 1986, which created MACRS (Modified Accelerated Cost Recovery System). Prior recovery periods were 15-19 years under ACRS (1981-1986). Congress chose 27.5 to slow deductions and raise revenue.

No — IRC §167 specifies that depreciation is allowed only for property used in a trade or business, and only for property that wears out, decays, or becomes obsolete. Land does not deteriorate, so it cannot be depreciated. Allocate basis between land and improvements before computing depreciation.

How do I allocate land vs improvement value?

The IRS accepts the county assessor's land/improvement ratio applied to your purchase price. So if the assessor says $30k land and $120k improvements ($150k total) and you paid $200k, allocate 20% to land ($40k) and 80% to improvements ($160k). Document with the assessor printout.

What is the mid-month convention?

IRC §168(d)(4)(B) requires residential rental property to use the mid-month convention: property placed in service in any month is treated as placed in service in the middle of that month. Year 1 deduction = (12.5 − month) / 12 × annual figure. January is 11.5/12 = 95.8% of full year.

Do I have to take depreciation?

Yes. IRC §1016(a)(2) requires you to reduce basis by the depreciation "allowed or allowable" — meaning you owe depreciation recapture at sale even if you never claimed the deduction. Skipping depreciation in any year is leaving money on the table while still owing tax later.

What is depreciation recapture?

When you sell, the IRS recaptures depreciation at the unrecaptured §1250 gain rate — capped at 25%. So $50,000 of accumulated depreciation on a $100k gain is taxed at up to 25% on the recapture portion, and the remaining $50k at standard long-term capital gains (0/15/20%).

Can I use bonus depreciation on rental property?

The building itself does not qualify for bonus depreciation (39+ year property). But §1245 personal property identified through a cost segregation study (appliances, carpet, landscaping at 5-15 years) qualifies. Bonus depreciation under the TCJA 2017 was 100% through 2022, phasing down to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, 0% in 2027.

What is cost segregation?

Cost segregation is an engineering study that breaks a building into its 5/7/15-year components (appliances, carpet, fencing, parking lot) and 27.5-year shell. Front-loads depreciation deductions. Common for properties above $500k. Big4 and RSM-style firms perform these studies for $5-15k.

How does depreciation interact with passive activity loss?

Depreciation often creates a tax loss while cash flow is positive. Per IRC §469, passive losses can only offset passive income unless you qualify as a Real Estate Professional (REP) under §469(c)(7). The $25,000 "active participation" exception phases out between $100k-$150k MAGI.

What form do I report depreciation on?

Year 1: IRS Form 4562 Part III, line 19h (residential rental). Years 2+: Schedule E line 18 carries the depreciation through. Form 4562 must be filed in any year you place new property in service, claim §179, or claim bonus depreciation.

Does this calculator handle improvements added later?

Each capital improvement (new roof, addition, HVAC replacement) is depreciated separately starting in its own in-service month over its own 27.5-yr life. Re-run this calculator with the improvement basis and the placement month — add the schedule to your Form 4562.

IRC §168 · 27.5-yr · Mid-month convention

Rental Depreciation Calculator

To depreciate a residential rental property, divide the improvement basis (price minus land) by 27.5 years and apply the IRS mid-month convention in year 1. That is the MACRS straight-line method codified by the Tax Reform Act of 1986 in IRC §168 and reproduced in IRS Publication 527 Table A-6. The schedule below is Form 4562-ready.

$4364

Full annual

$4182

Year 1 (Jan)

$120000

Improvement basis

95.8%

Y1 factor

Non-cash deduction. Still recapture-taxed at sale.

Quick Conversion

FROM (Improvement basis ($))

TO (Annual deduction ($))4,363.6364

Formula: annual = basis / 27.5

27.5-Year Schedule — Form 4562 Lines

Property inputs

Label

Total cost basis ($)

Land value (non-depreciable)

In-service month (1-12)

Annual

$4364

years 2-28

Year 1

$4182

mid-month

Schedule (Form 4562-ready)

Year	Deduction	Cumulative	Remaining basis
1	$4181.82	$4181.82	$115818.18
2	$4363.64	$8545.45	$111454.55
3	$4363.64	$12909.09	$107090.91
4	$4363.64	$17272.73	$102727.27
5	$4363.64	$21636.36	$98363.64
6	$4363.64	$26000.00	$94000.00
7	$4363.64	$30363.64	$89636.36
8	$4363.64	$34727.27	$85272.73
9	$4363.64	$39090.91	$80909.09
10	$4363.64	$43454.55	$76545.45
11	$4363.64	$47818.18	$72181.82
12	$4363.64	$52181.82	$67818.18
13	$4363.64	$56545.45	$63454.55
14	$4363.64	$60909.09	$59090.91
15	$4363.64	$65272.73	$54727.27
16	$4363.64	$69636.36	$50363.64
17	$4363.64	$74000.00	$46000.00
18	$4363.64	$78363.64	$41636.36
19	$4363.64	$82727.27	$37272.73
20	$4363.64	$87090.91	$32909.09
21	$4363.64	$91454.55	$28545.45
22	$4363.64	$95818.18	$24181.82
23	$4363.64	$100181.82	$19818.18
24	$4363.64	$104545.45	$15454.55
25	$4363.64	$108909.09	$11090.91
26	$4363.64	$113272.73	$6727.27
27	$4363.64	$117636.36	$2363.64
28	$2363.64	$120000.00	$0.00

Property presets

IRS Pub 946 Table A-6 — first-year %

Month placed	Y1 %	Y1 $ (on $100k)
Jan	95.83%	$3485
Feb	87.50%	$3182
Mar	79.17%	$2879
Apr	70.83%	$2576
May	62.50%	$2273
Jun	54.17%	$1970
Jul	45.83%	$1667
Aug	37.50%	$1364
Sep	29.17%	$1061
Oct	20.83%	$758
Nov	12.50%	$455
Dec	4.17%	$152

Non-residential 39-yr property? See Depreciation Calculator →

Formula

improv_basis = total_basis − landannual = improv_basis / 27.5year_1 = annual × (12.5 − month) / 12

Worked: $150k basis, $30k land → improvement $120k → annual $4,364. January in-service → Y1 = $4,364 × 11.5/12 = $4,181.

From ACRS 1981 to MACRS 1986: how 27.5-year residential depreciation became law

In 2026, a new landlord closing on a $200k single-family rental in Cincinnati needs to know exactly how much to depreciate in year one. That figure — driven by the IRS mid-month convention and the 27.5-year recovery period — affects Schedule E tax loss, passive activity loss limits, and ultimately the after-tax return on the investment. This calculator generates the Form 4562-ready schedule in real time.

The Internal Revenue Code §167 has allowed depreciation deductions for income-producing property since the 16th Amendment's 1913 income tax framework. The original system used "useful life" estimates per IRS Publication 17 (Bulletin F, 1942). The Economic Recovery Tax Act of 1981 (ERTA) introduced ACRS — the Accelerated Cost Recovery System — with 15-year recovery for real estate, juicing 1981-85 real estate development.

The Tax Reform Act of 1986, signed by President Reagan on October 22, 1986, repealed ACRS and replaced it with MACRS (Modified Accelerated Cost Recovery System) under IRC §168. The act lengthened residential rental recovery to 27.5 years and commercial to 31.5 (later 39, per the Omnibus Budget Reconciliation Act of 1993). The new schedule slowed deductions and helped pay for the act's headline rate cuts.

The Servicemen's Readjustment Act of 1944 (the GI Bill) had already created the VA loan that fueled post-WWII residential investment; the FHA, established under the National Housing Act of 1934, had introduced 30-year amortizing mortgages. Together, the FHA and VA programs created the financed-rental-property class that 27.5-year depreciation now governs.

The Housing and Community Development Act of 1974 created the Section 8 voucher program, which since 1998 (Quality Housing and Work Responsibility Act) requires tenant rent at 30% of adjusted income — making Section 8 fourplexes a popular cap-rate-driven investment class. Many of these properties qualify for additional LIHTC depreciation under IRC §42.

The PMI Cancellation Act of 1998 (Homeowners Protection Act) is parallel framework — it forces lenders to drop PMI at 78% LTV automatically. While unrelated to depreciation directly, it shapes the cash-flow math on a leveraged rental, which is why the rental property analyzer and rental depreciation tools sit side by side.

By 2026, the Tax Cuts and Jobs Act of 2017 left §168 27.5-year residential depreciation untouched but added 100% bonus depreciation through 2022 (phasing down to 0% in 2027) for personal-property components identified via cost segregation. The USDA Rural Development single-family housing program and FHA 203(b) loans continue to feed first-time landlords into the asset class — and into this calculator.

How to file the schedule with Form 4562

Pull cost basis. Purchase price + closing costs (title, recording, transfer tax). Use IRS Pub 527 Worksheet 1.
Allocate land. Use county assessor land/improvement ratio. Document with the assessor printout.
Set in-service month. The month you advertised the property for rent — even if no tenant signed yet.
Compute year-1 deduction. Annual × (12.5 − month) / 12. Enter on Form 4562 Part III line 19h.
Carry forward. Years 2-28 take the full annual; year 29 (or whenever basis exhausts) takes the remaining balance. Report each year on Schedule E line 18.

Rental depreciation — frequently asked questions

Have more questions? Contact us

What CPAs and landlords say

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Based on 4,980 reviews

“The mid-month convention is implemented correctly — I verified against IRS Pub 946 Table A-6 and the year-1 factor matches to the penny. I now send clients here to model new acquisitions before they call me. Saves both of us time at year-end.”

Olusegun Adeyinka Babatunde-Oyelaran

CPA, real estate tax specialty practice

May 20, 2026

“The IRC §168 citation and Form 4562 line reference in the FAQ are exactly what I cite in client memos. The schedule chart visualizes why year 1 is partial — a concept that always trips up first-year landlord clients. Excellent teaching tool.”

Henrietta Aurelija Vaitkutė-Petraitienė

Enrolled Agent, real estate professional clients

April 25, 2026

“I run every new acquisition through this before closing. The luxury condo $850k preset matches my Atlanta Buckhead high-rise basis allocation exactly. Combined with the rental property analyzer it covers my entire underwriting workflow.”

Vimbiso Tinotenda Madondo-Chitando

Buy-and-hold investor, 22-property portfolio

March 18, 2026

“The recapture FAQ is correctly cites unrecaptured §1250 gain at the 25% cap — which most online calculators get wrong. The cost-seg context is also accurate per current TCJA phase-down schedule. Recommend this to my §1031-exchange clients.”

Frederik Mathias Hjorth-Sørensen

Boutique tax attorney, §1031 and cost segregation

February 8, 2026

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