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. Land is typically 15% to 25%, 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% to 35%) from 27.5-year property to 5/7/15-year property, which accelerates depreciation. Combined with bonus depreciation, you can frontload massive deductions. See the cost segregation calculator.