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Rental property depreciation calculator

Estimate how much depreciation a rental building gives you each year. Enter the price, your purchase costs, the land share, any improvements before the first tenant and the month the property was ready to rent.

Property type

Closing costs that add to your basis, such as title fees and recording fees.

Land value over total value, from your property tax assessment or an appraisal.

Work that adds value or extends the building's life. Enter 0 if none.

Month placed in service

The month the property was ready and available to rent.

Your results

Estimate

Annual depreciation (full year): $10,000.00

Depreciable basis breakdownDepreciable basis of $275,000: price and purchase costs $337,500, less land $67,500, plus improvements $5,000. Over 27.5 years that is $10,000 a year and $7,083 in the first year.$338kCost-$68kLand$5kImprovements$275kBasis
First-year depreciation
$7,083.33
Monthly depreciation
$833.33
Depreciable basis
$275,000.00
Land value (not depreciated)
$67,500.00
First-year rate
2.58%
Recovery period in years
27.5
  • The first year uses the mid-month convention: the month placed in service counts as half a month.
  • Depreciation you could have claimed lowers your basis when you sell, and part of the gain may be taxed as depreciation recapture.

Results are estimates for planning only. They are not legal, tax or investment advice, and they apply no state or local rules. Check your lease, your local laws and a qualified professional before you rely on a number.

How rental property depreciation is calculated

Annual depreciation = (price + purchase costs - land value + improvements) / recovery period

Start with your basis: the purchase price plus closing costs that add to basis, such as title and recording fees. Land never wears out, so its share comes off. A common way to split the two is the ratio of land value to total value on your property tax assessment. Improvements made before the property is ready to rent are added on.

Residential rental buildings are depreciated in equal amounts over 27.5 years, and commercial buildings over 39 years. Divide the basis by the recovery period for a full year's depreciation.

The first year is shorter. Under the mid-month convention, the property is treated as placed in service in the middle of its month, so a building ready to rent in April gets 8.5 months of depreciation in that first year. The calculator also shows that amount as a share of the basis, the figure the percentage tables in IRS Publication 946 list.

Worked example

You buy a single-family rental for $330,000 and pay $7,500 in closing costs that add to basis. The tax assessment puts 20% of the value in the land, you spend $5,000 on improvements before the first tenant, and the house is ready to rent in April.

  1. Price plus purchase costs: $330,000 + $7,500 = $337,500.
  2. Land: $337,500 x 20% = $67,500, which is not depreciated.
  3. Depreciable basis: $337,500 - $67,500 + $5,000 = $275,000.
  4. Annual depreciation: $275,000 / 27.5 = $10,000, or $833.33 a month.
  5. First year: April counts as half a month, so the year has 8.5 months: $10,000 x 8.5 / 12 = $7,083.33.

The estimated depreciation is $10,000.00 for each full year and $7,083.33 for the first year.

Frequently asked questions

How is depreciation on a rental property calculated?

Take the building's share of what you paid, add improvements, and divide by the recovery period: 27.5 years for residential rentals and 39 years for commercial buildings. The first and last years are partial years under the mid-month convention.

Can you depreciate the land?

No. Land does not wear out, so only the building and improvements are depreciated. In the example above, $67,500 of the $337,500 cost is land and stays out of the $275,000 basis.

When does depreciation on a rental start?

When the property is placed in service, which means it is ready and available to rent. That can be before a tenant moves in. Depreciation stops when you have recovered the full basis or when you sell the property or stop renting it.

How are improvements made later depreciated?

An improvement such as a new roof is depreciated on its own schedule, starting in the month it is placed in service. Repairs that keep the property in working order are deducted as expenses in the year you pay for them instead.

What happens to depreciation when I sell?

Depreciation lowers your basis, so it raises the gain when you sell. The part of the gain that comes from depreciation is generally taxed as depreciation recapture, at a federal rate of up to 25%. A tax professional can tell you how this applies to your sale.

Keep the records your depreciation starts from

KeyRing pulls transactions from your bank feed and matches rent and expenses to each property, with suggestions you confirm, so the purchase costs and improvements behind your basis are easy to find at tax time. Your first subscription starts with a 14-day free trial.

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