Rental Property Depreciation Calculator | 27.5-Year Deduction & Tax Savings | Lofty
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Rental Property Depreciation Calculator
Enter purchase price, land value, and improvements to get your depreciable basis, annual straight-line deduction, first-year mid-month amount, and estimated tax savings at your marginal rate.
Your numbers
| Cost basis | Description |
|---|---|
| Purchase price | Total cost of the property, including most acquisition costs. |
| Land value | Land never depreciates. Use your county assessor's land-to-total ratio; 20% of price is a common fallback. |
| Capital improvements | Renovations and major systems that add value. Repairs do not count. |
Depreciation schedule
| Months in service (first year) | Recovery period |
|---|---|
| mos | 27.5 years for residential rentals, 39 for commercial property. |
Tax rates
- Marginal tax rate%: Your top federal bracket. 2026 brackets commonly relevant: 22%, 24%, 32%.
Overview
What is a depreciation calculator?
A rental property depreciation calculator divides a property's depreciable basis, purchase price minus land value, plus capital improvements, by the IRS recovery period (27.5 years for residential rentals, 39 for commercial) to find the annual deduction. Multiplying the deduction by your marginal tax rate shows the yearly tax savings, one of the largest recurring tax benefits of owning rentals.
How investors usually read these numbers
| Metric | Often strong | Watch out | Why it matters |
|---|---|---|---|
| Annual deduction vs purchase price | 2.5% to 3% of price | Below 2% | A typical 75/25 building-to-land split yields about 2.7% of price per year; a much lower figure suggests the land value may be overstated. |
| Land share of value | 15% to 30% | Above 40% (unless coastal/urban) | The higher the land share, the smaller the depreciable basis and the annual deduction. |
| Annual tax savings | $2,000+ per property at 24%+ | Unused due to passive loss limits | Savings only materialize if you can use the losses; passive activity rules can suspend them until sale. |
| Recapture exposure at sale | Planned for (1031 or hold) | Ignored in exit math | All depreciation taken (or allowable) is taxed at up to 25% federal when you sell without an exchange. |
How to run a depreciation analysis
Enter the purchase price:
Use the total acquisition cost of the property, which generally includes most closing costs paid at purchase.Subtract the land value:
Land does not depreciate. Pull the land-to-total ratio from your county assessor's statement and apply it to your price; around 20% is a common fallback, more in expensive coastal metros.Add capital improvements:
Include renovations, additions, roofs, HVAC, and other major systems that add value or extend life. Ordinary repairs are deducted in the year paid instead.Set the recovery period and first-year months:
Residential rentals use 27.5 years, commercial 39. Set months in service for year one; the mid-month convention gives a half month for the month you place it in service.Add your marginal tax rate and read the results:
The calculator shows your annual deduction, first-year amount, tax savings at your rate, and total depreciation over the full recovery period.
The math behind the result
Core formulas
- Depreciable basis = purchase price - land value + capital improvements.
- Annual depreciation = depreciable basis / recovery period (27.5 years residential, 39 commercial).
- First-year depreciation = annual amount x (months in service - 0.5) / 12, approximating the IRS mid-month convention.
- Annual tax savings = annual depreciation x marginal tax rate.
- Monthly equivalent tax savings = annual tax savings / 12.
- Total depreciation over the recovery period = the full depreciable basis.
Expert takeaways
- Depreciation is a paper loss against real income. A property can produce positive cash flow and still show a taxable loss, which is the core tax advantage of direct rental ownership.
- Land never depreciates, so the land-value split matters. Using your county assessor's land-to-improvement ratio is the defensible method; an aggressive low land value invites problems at audit and at sale.
- The IRS "allowed or allowable" rule means you owe depreciation recapture at sale even if you never claimed the deduction. Skipping depreciation is all downside; owners who did should ask a CPA about a Form 3115 catch-up.
- Recapture at sale runs up to 25% federal on the depreciation taken, which surprises long-term owners. A 1031 exchange defers it; the Section 121 home-sale exclusion does not cover it.
- Cost segregation can accelerate deductions by reclassifying components (appliances, flooring, land improvements) into 5-, 7-, and 15-year property. On larger properties, it can front-load six figures of deductions at the cost of a study fee and faster recapture.
Key terms in plain English
- Depreciable basis: Purchase price - land + improvements. Depreciable basis is the portion of your investment the IRS lets you write off: the building and improvements, but never the land. It starts at cost, excludes the land value, and grows with capital improvements placed in service.
- Straight-line depreciation: Equal deductions over the recovery period. Residential rental real estate must use straight-line depreciation: the same deduction every year for 27.5 years.
- Mid-month convention: Half a month's depreciation in the start month. The IRS treats rental real estate as placed in service at the midpoint of the month it becomes available for rent.
- Depreciation recapture: Tax reclaiming prior deductions at sale.
- Cost segregation: Study that accelerates depreciation.