Depreciation Calculator

The IRS lets you deduct a portion of the building (not land) each year as depreciation. Residential rentals use a 27.5-year straight-line schedule; commercial uses 39. Annual deduction = (Purchase Price − Land Value) ÷ Years.

Land doesn’t wear out. The IRS only allows depreciation on the building and improvements. You must allocate purchase price between land and building — typically 15–25% to land, depending on local assessment ratios.

Three accepted methods: (1) ratio from the property tax assessment (most common), (2) appraisal allocation, (3) comparable land sales. The tax assessment ratio is easiest — if your assessed value is 20% land / 80% improvements, apply that to your purchase price.

Yes, this is "depreciation recapture." When you sell, you owe ordinary income tax (capped at 25%) on accumulated depreciation, plus capital gains tax on the rest of the appreciation. A 1031 exchange can defer all of this — see the 1031 calculator.

Generally no, due to passive activity loss rules. Most W-2 earners can only deduct passive losses against passive income. Real estate professionals (750+ hours/year, 50%+ of work time in RE) are exempt and can offset W-2 income with rental losses.

You should still claim it. The IRS considers depreciation "allowed or allowable" — meaning if you don’t take it, you’re still treated as if you did when you sell (you’ll owe recapture on it anyway). Always claim depreciation; let your CPA stack it against carryforward losses.

Cost segregation reclassifies portions of the building (typically 20–35%) from 27.5-year property to 5/7/15-year property — accelerating depreciation. Combined with bonus depreciation, you can frontload massive deductions. See the cost segregation calculator.