Residential rental buildings are depreciated for federal taxes over 27.5 years. The yearly deduction lowers taxable rental income, often by thousands of dollars.
Only the building
Land is not depreciated. Split the purchase price between land and building, often using the property appraiser's values as a guide. Add purchase costs that must be capitalized, and later improvements.
The first year
Depreciation starts when the property is placed in service, ready and available to rent. Residential rentals use a mid-month convention, so the first year counts from the middle of that month.
When you sell
Depreciation lowers your basis in the property. When you sell, part of the gain linked to depreciation can be taxed differently. Plan the sale with your CPA.
Our rental depreciation estimator shows the yearly and first-year amounts.
General information, not tax advice. Work with a CPA; the IRS rules decide.
This article is general information, not legal, tax or regulatory advice. Rules change; confirm current requirements with the responsible agency or a licensed professional.
