Calculate your annual depreciation deduction and tax savings across income brackets
Depreciation is one of the biggest tax advantages of owning rental property. The IRS allows you to deduct the cost of your building (not land) over 27.5 years for residential property, creating a "paper loss" that offsets rental income — even though the property may be appreciating in value.
Land is not depreciable. Only the building and improvements can be depreciated. Typically land represents 15–25% of the purchase price, though this varies by location. Your county tax assessment often provides a land-to-improvement ratio.
Capital improvements (new roof, HVAC system, adding a bedroom) are added to your depreciable basis and increase your annual deduction. Routine repairs and maintenance are deducted immediately instead.
When you sell, you'll owe depreciation recapture tax at 25% on all depreciation claimed — unless you do a 1031 exchange to defer it. Use our 1031 Exchange Calculator to model that scenario.