{"id":740,"date":"2026-08-10T00:17:26","date_gmt":"2026-08-10T04:17:26","guid":{"rendered":"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/"},"modified":"2026-08-10T00:48:59","modified_gmt":"2026-08-10T04:48:59","slug":"depreciation-calculator-how-to-use","status":"publish","type":"post","link":"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/","title":{"rendered":"Real Estate Depreciation Calculator: How to Calculate Depreciation Step by Step (2026)"},"content":{"rendered":"<p>Use a <a href=\"\/depreciation-calculator\">real estate depreciation calculator<\/a> and you can find your annual deduction in under two minutes \u2014 no spreadsheet, no accountant call required. The IRS lets you deduct the cost of a residential rental property over 27.5 years or a commercial building over 39 years. On a $310,000 purchase with $60,000 in land value, that&#8217;s $9,090 written off every year without spending a dollar. This guide shows you exactly how to run the numbers, what the IRS rules say, and how to turn depreciation into real tax savings.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_83 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<p><span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav>\n<ul class='ez-toc-list ez-toc-list-level-1 ' >\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#What_Is_Real_Estate_Depreciation\" >What Is Real Estate Depreciation?<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#IRS_Rules_275_Years_vs_39_Years\" >IRS Rules: 27.5 Years vs. 39 Years<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#When_Does_Depreciation_Start\" >When Does Depreciation Start?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Depreciable_Basis_What_You_Can_Deduct\" >Depreciable Basis: What You Can Deduct<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#How_to_Use_Our_Depreciation_Calculator\" >How to Use Our Depreciation Calculator<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Mode_1_Calculate_Annual_Depreciation\" >Mode 1: Calculate Annual Depreciation<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Mode_2_Cost_Segregation_Analysis\" >Mode 2: Cost Segregation Analysis<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Mode_3_Reverse_%E2%80%94_Find_the_Depreciable_Basis\" >Mode 3: Reverse \u2014 Find the Depreciable Basis<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Worked_Example_1_Single-Family_Rental_in_Dallas_TX\" >Worked Example 1: Single-Family Rental in Dallas, TX<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_1_Calculate_Depreciable_Basis\" >Step 1: Calculate Depreciable Basis<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_2_Calculate_Annual_Straight-Line_Depreciation\" >Step 2: Calculate Annual Straight-Line Depreciation<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention\" >Step 3: Calculate Year-One Depreciation (Mid-Month Convention)<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_4_Full_Depreciation_Schedule_First_5_Years\" >Step 4: Full Depreciation Schedule (First 5 Years)<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Worked_Example_2_Small_Office_Building\" >Worked Example 2: Small Office Building<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_1_Calculate_Depreciable_Basis-2\" >Step 1: Calculate Depreciable Basis<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_2_Calculate_Annual_Straight-Line_Depreciation-2\" >Step 2: Calculate Annual Straight-Line Depreciation<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention-2\" >Step 3: Calculate Year-One Depreciation (Mid-Month Convention)<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Step_4_Full_Depreciation_Schedule_First_5_Years-2\" >Step 4: Full Depreciation Schedule (First 5 Years)<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Straight-Line_vs_Cost_Segregation_Which_Is_Right_for_You\" >Straight-Line vs. Cost Segregation: Which Is Right for You?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#How_Depreciation_Reduces_Your_Tax_Bill\" >How Depreciation Reduces Your Tax Bill<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Concrete_Dollar_Savings_Dallas_SFR_at_35_Tax_Bracket\" >Concrete Dollar Savings: Dallas SFR at 35% Tax Bracket<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Depreciation_and_Passive_Activity_Rules\" >Depreciation and Passive Activity Rules<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Depreciation_Shelter_Month-by-Month_Cash_Flow_Impact\" >Depreciation Shelter: Month-by-Month Cash Flow Impact<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Depreciation_Recapture_What_Happens_When_You_Sell\" >Depreciation Recapture: What Happens When You Sell<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Section_1250_Recapture\" >Section 1250 Recapture<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#1031_Exchange_Defer_Recapture_Indefinitely\" >1031 Exchange: Defer Recapture Indefinitely<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Cost_Segregation_Recapture_A_Different_Rate\" >Cost Segregation Recapture: A Different Rate<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-28\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#5_Common_Depreciation_Mistakes\" >5 Common Depreciation Mistakes<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-29\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#1_Depreciating_the_Land\" >1. Depreciating the Land<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-30\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#2_Starting_Depreciation_on_the_Purchase_Date_Instead_of_the_In-Service_Date\" >2. Starting Depreciation on the Purchase Date Instead of the In-Service Date<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-31\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#3_Forgetting_to_Depreciate_Capital_Improvements_Separately\" >3. Forgetting to Depreciate Capital Improvements Separately<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-32\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#4_Ignoring_Depreciation_Recapture_in_HoldSell_Decisions\" >4. Ignoring Depreciation Recapture in Hold\/Sell Decisions<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-33\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#5_Skipping_a_Cost_Segregation_Analysis_on_High-Value_Properties\" >5. Skipping a Cost Segregation Analysis on High-Value Properties<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-34\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a>\n<ul class='ez-toc-list-level-3' >\n<li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-35\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Can_I_use_a_real_estate_depreciation_calculator_for_any_property_type\" >Can I use a real estate depreciation calculator for any property type?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-36\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#How_do_I_find_the_land_value_for_my_rental_property\" >How do I find the land value for my rental property?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-37\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#What_is_the_depreciation_recapture_rate_when_I_sell\" >What is the depreciation recapture rate when I sell?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-38\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Does_depreciation_reduce_my_taxable_income_even_if_the_property_is_cash_flow_positive\" >Does depreciation reduce my taxable income even if the property is cash flow positive?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-39\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#What_happens_to_unused_depreciation_losses_if_my_income_is_too_high\" >What happens to unused depreciation losses if my income is too high?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-40\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#How_does_a_1031_exchange_interact_with_accumulated_depreciation\" >How does a 1031 exchange interact with accumulated depreciation?<\/a><\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-41\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Is_cost_segregation_worth_it_for_a_property_under_300000\" >Is cost segregation worth it for a property under $300,000?<\/a><\/li>\n<\/ul>\n<\/li>\n<li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-42\" href=\"https:\/\/arvcalc.com\/blog\/depreciation-calculator-how-to-use\/#Related_Calculators\" >Related Calculators<\/a><\/li>\n<\/ul>\n<\/nav>\n<\/div>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"450\" src=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-formula-diagram.jpg\" alt=\"Real estate depreciation formula diagram showing residential 27.5 years and commercial 39 years calculation\" class=\"wp-image-743\" srcset=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-formula-diagram.jpg 900w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-formula-diagram-300x150.jpg 300w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-formula-diagram-768x384.jpg 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption>Real Estate Depreciation Formula: (Purchase Price \u2212 Land Value) \u00f7 Recovery Period<\/figcaption><\/figure>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"400\" src=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-straight-line-vs-cost-segregation.jpg\" alt=\"Straight-line depreciation vs cost segregation comparison for real estate investors\" class=\"wp-image-745\" srcset=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-straight-line-vs-cost-segregation.jpg 900w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-straight-line-vs-cost-segregation-300x133.jpg 300w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-straight-line-vs-cost-segregation-768x341.jpg 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption>Straight-Line vs Cost Segregation: standard depreciation vs accelerated front-loaded deductions<\/figcaption><\/figure>\n<h2><span class=\"ez-toc-section\" id=\"What_Is_Real_Estate_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"What_Is_Real_Estate_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"What_Is_Real_Estate_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"What_Is_Real_Estate_Depreciation\"><\/span>What Is Real Estate Depreciation?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Depreciation is an accounting deduction that lets property owners recover the cost of a building over time. The IRS treats buildings as assets that wear out \u2014 they depreciate. You get to deduct a portion of that loss each year against rental income, even if the property is actually going up in value.<\/p>\n<p>The land under a building never wears out, so it is never depreciable. Only the structure counts. That distinction matters every time you run the numbers.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"IRS_Rules_275_Years_vs_39_Years\"><\/span><span class=\"ez-toc-section\" id=\"IRS_Rules_275_Years_vs_39_Years\"><\/span><span class=\"ez-toc-section\" id=\"IRS_Rules_275_Years_vs_39_Years\"><\/span><span class=\"ez-toc-section\" id=\"IRS_Rules_275_Years_vs_39_Years\"><\/span>IRS Rules: 27.5 Years vs. 39 Years<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The IRS uses a system called <strong>Modified Accelerated Cost Recovery System (MACRS)<\/strong>. Under MACRS, residential rental properties use a <strong>27.5-year straight-line recovery period<\/strong>. Commercial properties use a <strong>39-year recovery period<\/strong>. Both rules come from <a href=\"https:\/\/www.irs.gov\/publications\/p946\" target=\"_blank\" rel=\"noopener noreferrer\">IRS Publication 946<\/a>, the definitive reference for depreciation.<\/p>\n<p>Residential rental property means any property where 80% or more of gross rental income comes from dwelling units. Single-family rentals, duplexes, triplexes, and apartment buildings all qualify. Mixed-use commercial buildings, office parks, and retail centers fall under the 39-year rule.<\/p>\n<p><a href=\"https:\/\/www.irs.gov\/publications\/p527\" target=\"_blank\" rel=\"noopener noreferrer\">IRS Publication 527<\/a> covers residential rental property in detail, including what counts as depreciable, how to determine your basis, and when the depreciation clock starts.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"When_Does_Depreciation_Start\"><\/span><span class=\"ez-toc-section\" id=\"When_Does_Depreciation_Start\"><\/span><span class=\"ez-toc-section\" id=\"When_Does_Depreciation_Start\"><\/span><span class=\"ez-toc-section\" id=\"When_Does_Depreciation_Start\"><\/span>When Does Depreciation Start?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Depreciation begins when the property is placed in service \u2014 meaning it is available and ready for rental, not necessarily the day a tenant moves in. If you buy a rental in July and it sits vacant while you find a tenant, depreciation starts in July. If you buy it in December but spend three months renovating before it is rentable, it starts when the renovation is complete.<\/p>\n<p>Depreciation uses a <strong>mid-month convention<\/strong> in year one. You get a half-month of depreciation for the month you place the property in service, regardless of which day of the month that is. This affects only the first and last years of the schedule.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Depreciable_Basis_What_You_Can_Deduct\"><\/span><span class=\"ez-toc-section\" id=\"Depreciable_Basis_What_You_Can_Deduct\"><\/span><span class=\"ez-toc-section\" id=\"Depreciable_Basis_What_You_Can_Deduct\"><\/span><span class=\"ez-toc-section\" id=\"Depreciable_Basis_What_You_Can_Deduct\"><\/span>Depreciable Basis: What You Can Deduct<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Your depreciable basis is typically your purchase price minus the value of the land, plus any capital improvements. It is not just the purchase price.<\/p>\n<ul>\n<li><strong>Purchase price:<\/strong> What you paid at closing<\/li>\n<li><strong>Minus land value:<\/strong> Land is never depreciated<\/li>\n<li><strong>Plus closing costs:<\/strong> Legal fees, title insurance, recording fees attributable to the property<\/li>\n<li><strong>Plus capital improvements:<\/strong> Roof replacement, HVAC system, additions \u2014 not repairs<\/li>\n<\/ul>\n<p>How do you determine land value? The most common method is using your county property tax assessment. Most assessments break out land value from improvement value. Alternatively, you can get a formal appraisal or use a percentage based on comparable sales. Whatever method you use, document it.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Use_Our_Depreciation_Calculator\"><\/span><span class=\"ez-toc-section\" id=\"How_to_Use_Our_Depreciation_Calculator\"><\/span><span class=\"ez-toc-section\" id=\"How_to_Use_Our_Depreciation_Calculator\"><\/span><span class=\"ez-toc-section\" id=\"How_to_Use_Our_Depreciation_Calculator\"><\/span>How to Use Our Depreciation Calculator<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> runs three modes depending on what you need to find. Here is how each one works.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Mode_1_Calculate_Annual_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Mode_1_Calculate_Annual_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Mode_1_Calculate_Annual_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Mode_1_Calculate_Annual_Depreciation\"><\/span>Mode 1: Calculate Annual Depreciation<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>This is the standard mode. You enter the property details and get the full depreciation schedule.<\/p>\n<p><strong>Step 1 \u2014 Enter the purchase price.<\/strong> Use the full closing price, not the financed amount. Whether you paid cash or took out a mortgage does not change your depreciable basis.<\/p>\n<p><strong>Step 2 \u2014 Enter the land value.<\/strong> Pull the figure from your county tax assessment or appraisal. The <a href=\"\/depreciation-calculator\">rental property depreciation calculator<\/a> subtracts this from your purchase price automatically to get the depreciable basis.<\/p>\n<p><strong>Step 3 \u2014 Select property type.<\/strong> Choose residential (27.5-year MACRS) or commercial (39-year MACRS). The calculator applies the correct recovery period and mid-month convention for year one.<\/p>\n<p><strong>Step 4 \u2014 Enter the in-service date.<\/strong> The month and year you placed the property in service. This determines your first-year partial deduction based on the mid-month convention.<\/p>\n<p>Hit calculate. The <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> returns your annual deduction, your year-one deduction (adjusted for mid-month), and a full depreciation schedule showing cumulative deductions through the end of the recovery period.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Mode_2_Cost_Segregation_Analysis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_2_Cost_Segregation_Analysis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_2_Cost_Segregation_Analysis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_2_Cost_Segregation_Analysis\"><\/span>Mode 2: Cost Segregation Analysis<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Cost segregation accelerates depreciation by reclassifying components of a building into shorter recovery periods \u2014 5, 7, or 15 years instead of 27.5 or 39. The result is larger deductions in the early years of ownership.<\/p>\n<p>Enter your property details plus estimates for personal property components (appliances, carpet, fixtures) and land improvements (parking lots, landscaping, sidewalks). The <a href=\"\/depreciation-calculator\">real estate depreciation calculator<\/a> shows you the difference between straight-line and a cost segregation scenario side by side \u2014 including the net present value of accelerating those deductions.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Mode_3_Reverse_%E2%80%94_Find_the_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_3_Reverse_%E2%80%94_Find_the_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_3_Reverse_%E2%80%94_Find_the_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Mode_3_Reverse_%E2%80%94_Find_the_Depreciable_Basis\"><\/span>Mode 3: Reverse \u2014 Find the Depreciable Basis<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>You know how much annual depreciation you want to claim. What purchase price and land allocation do you need to hit that number? Enter the target annual deduction, property type, and land percentage, and the calculator works backward to show the required depreciable basis. Useful for back-of-envelope underwriting before you have a full property appraisal.<\/p>\n<p>For a complete picture of how depreciation fits into your overall investment returns, pair this with the <a href=\"\/rental-property-calculator\">rental property calculator<\/a> and the <a href=\"\/real-estate-roi-calculator\">real estate ROI calculator<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Worked_Example_1_Single-Family_Rental_in_Dallas_TX\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_1_Single-Family_Rental_in_Dallas_TX\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_1_Single-Family_Rental_in_Dallas_TX\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_1_Single-Family_Rental_in_Dallas_TX\"><\/span>Worked Example 1: Single-Family Rental in Dallas, TX<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>Property type:<\/strong> Single-family rental, 3 bed \/ 2 bath<br \/>\n<strong>Location:<\/strong> Dallas, TX<br \/>\n<strong>Purchase price:<\/strong> $310,000<br \/>\n<strong>Land value (per county assessment):<\/strong> $60,000<br \/>\n<strong>In-service date:<\/strong> March 2026<br \/>\n<strong>Recovery period:<\/strong> 27.5 years (residential)<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis\"><\/span>Step 1: Calculate Depreciable Basis<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<pre><code>Depreciable basis = Purchase price \u2212 Land value\nDepreciable basis = $310,000 \u2212 $60,000 = $250,000<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation\"><\/span>Step 2: Calculate Annual Straight-Line Depreciation<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<pre><code>Annual depreciation = Depreciable basis \u00f7 Recovery period\nAnnual depreciation = $250,000 \u00f7 27.5 = $9,090.91 per year<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention\"><\/span>Step 3: Calculate Year-One Depreciation (Mid-Month Convention)<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Property placed in service in March. The mid-month convention gives you credit for half of March, then April through December = 9.5 months out of 12.<\/p>\n<pre><code>Year-one factor = 9.5 \u00f7 12 = 0.7917\nYear-one depreciation = $9,090.91 \u00d7 0.7917 = $7,196.97<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years\"><\/span>Step 4: Full Depreciation Schedule (First 5 Years)<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<figure class=\"wp-block-table\">\n<table>\n<thead>\n<tr>\n<th>Year<\/th>\n<th>Depreciable Basis<\/th>\n<th>Annual Deduction<\/th>\n<th>Cumulative Deduction<\/th>\n<th>Remaining Basis<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>2026 (Year 1)<\/td>\n<td>$250,000<\/td>\n<td>$7,197<\/td>\n<td>$7,197<\/td>\n<td>$242,803<\/td>\n<\/tr>\n<tr>\n<td>2027 (Year 2)<\/td>\n<td>$250,000<\/td>\n<td>$9,091<\/td>\n<td>$16,288<\/td>\n<td>$233,712<\/td>\n<\/tr>\n<tr>\n<td>2028 (Year 3)<\/td>\n<td>$250,000<\/td>\n<td>$9,091<\/td>\n<td>$25,379<\/td>\n<td>$224,621<\/td>\n<\/tr>\n<tr>\n<td>2029 (Year 4)<\/td>\n<td>$250,000<\/td>\n<td>$9,091<\/td>\n<td>$34,470<\/td>\n<td>$215,530<\/td>\n<\/tr>\n<tr>\n<td>2030 (Year 5)<\/td>\n<td>$250,000<\/td>\n<td>$9,091<\/td>\n<td>$43,561<\/td>\n<td>$206,439<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>Run this exact scenario in the <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> and you get the complete 27.5-year schedule with every line filled in. You can also export it to PDF for your tax records or hand it to your CPA.<\/p>\n<p>To see how this deduction interacts with your cash flow, plug these numbers into the <a href=\"\/property-cash-flow-calculator\">property cash flow calculator<\/a> and the <a href=\"\/noi-calculator\">NOI calculator<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Worked_Example_2_Small_Office_Building\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_2_Small_Office_Building\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_2_Small_Office_Building\"><\/span><span class=\"ez-toc-section\" id=\"Worked_Example_2_Small_Office_Building\"><\/span>Worked Example 2: Small Office Building<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong>Property type:<\/strong> Small office building (commercial)<br \/>\n<strong>Location:<\/strong> Phoenix, AZ<br \/>\n<strong>Purchase price:<\/strong> $520,000<br \/>\n<strong>Land value (per appraisal):<\/strong> $130,000<br \/>\n<strong>In-service date:<\/strong> June 2026<br \/>\n<strong>Recovery period:<\/strong> 39 years (commercial)<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_1_Calculate_Depreciable_Basis-2\"><\/span>Step 1: Calculate Depreciable Basis<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<pre><code>Depreciable basis = $520,000 \u2212 $130,000 = $390,000<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_2_Calculate_Annual_Straight-Line_Depreciation-2\"><\/span>Step 2: Calculate Annual Straight-Line Depreciation<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<pre><code>Annual depreciation = $390,000 \u00f7 39 = $10,000.00 per year<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_3_Calculate_Year-One_Depreciation_Mid-Month_Convention-2\"><\/span>Step 3: Calculate Year-One Depreciation (Mid-Month Convention)<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Property placed in service in June. Mid-month convention gives you credit for half of June, then July through December = 6.5 months out of 12.<\/p>\n<pre><code>Year-one factor = 6.5 \u00f7 12 = 0.5417\nYear-one depreciation = $10,000 \u00d7 0.5417 = $5,417<\/code><\/pre>\n<h3><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years-2\"><\/span><span class=\"ez-toc-section\" id=\"Step_4_Full_Depreciation_Schedule_First_5_Years-2\"><\/span>Step 4: Full Depreciation Schedule (First 5 Years)<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<figure class=\"wp-block-table\">\n<table>\n<thead>\n<tr>\n<th>Year<\/th>\n<th>Depreciable Basis<\/th>\n<th>Annual Deduction<\/th>\n<th>Cumulative Deduction<\/th>\n<th>Remaining Basis<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>2026 (Year 1)<\/td>\n<td>$390,000<\/td>\n<td>$5,417<\/td>\n<td>$5,417<\/td>\n<td>$384,583<\/td>\n<\/tr>\n<tr>\n<td>2027 (Year 2)<\/td>\n<td>$390,000<\/td>\n<td>$10,000<\/td>\n<td>$15,417<\/td>\n<td>$374,583<\/td>\n<\/tr>\n<tr>\n<td>2028 (Year 3)<\/td>\n<td>$390,000<\/td>\n<td>$10,000<\/td>\n<td>$25,417<\/td>\n<td>$364,583<\/td>\n<\/tr>\n<tr>\n<td>2029 (Year 4)<\/td>\n<td>$390,000<\/td>\n<td>$10,000<\/td>\n<td>$35,417<\/td>\n<td>$354,583<\/td>\n<\/tr>\n<tr>\n<td>2030 (Year 5)<\/td>\n<td>$390,000<\/td>\n<td>$10,000<\/td>\n<td>$45,417<\/td>\n<td>$344,583<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>The commercial schedule runs longer at 39 years versus 27.5, but the annual dollar amount depends entirely on your depreciable basis. This office building produces a larger annual deduction ($10,000) than the Dallas SFR ($9,091) simply because the depreciable basis is higher, even though the recovery period is longer. Use the <a href=\"\/depreciation-calculator\">real estate depreciation calculator<\/a> to test different land allocations and see how they shift your annual deduction.<\/p>\n<p>For the commercial property, also check the <a href=\"\/cap-rate-calculator\">cap rate calculator<\/a> and the <a href=\"\/cash-on-cash-calculator\">cash-on-cash calculator<\/a> to make sure the income side of the deal justifies the price.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Straight-Line_vs_Cost_Segregation_Which_Is_Right_for_You\"><\/span><span class=\"ez-toc-section\" id=\"Straight-Line_vs_Cost_Segregation_Which_Is_Right_for_You\"><\/span><span class=\"ez-toc-section\" id=\"Straight-Line_vs_Cost_Segregation_Which_Is_Right_for_You\"><\/span><span class=\"ez-toc-section\" id=\"Straight-Line_vs_Cost_Segregation_Which_Is_Right_for_You\"><\/span>Straight-Line vs. Cost Segregation: Which Is Right for You?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Straight-line depreciation is the default. Every investor gets it automatically. Cost segregation is an advanced strategy that front-loads deductions by reclassifying building components. Here is how they compare.<\/p>\n<figure class=\"wp-block-table\">\n<table>\n<thead>\n<tr>\n<th>Factor<\/th>\n<th>Straight-Line<\/th>\n<th>Cost Segregation<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><strong>Recovery period<\/strong><\/td>\n<td>27.5 or 39 years<\/td>\n<td>5, 7, 15 years for reclassified components; 27.5\/39 for remainder<\/td>\n<\/tr>\n<tr>\n<td><strong>Annual deduction (early years)<\/strong><\/td>\n<td>Equal every year<\/td>\n<td>Significantly larger in years 1\u20135<\/td>\n<\/tr>\n<tr>\n<td><strong>Cost to implement<\/strong><\/td>\n<td>$0 \u2014 automatic<\/td>\n<td>$5,000\u2013$15,000 for a cost segregation study<\/td>\n<\/tr>\n<tr>\n<td><strong>Break-even property value<\/strong><\/td>\n<td>Any value<\/td>\n<td>Generally $250,000+ in improvements to justify study cost<\/td>\n<\/tr>\n<tr>\n<td><strong>IRS audit risk<\/strong><\/td>\n<td>Very low<\/td>\n<td>Low-moderate if study is done by a qualified engineer<\/td>\n<\/tr>\n<tr>\n<td><strong>Best for<\/strong><\/td>\n<td>All investors, lower-value properties, passive income offsetting<\/td>\n<td>High-income investors, large properties, bonus depreciation years<\/td>\n<\/tr>\n<tr>\n<td><strong>Recapture treatment<\/strong><\/td>\n<td>Section 1250 (25% max rate)<\/td>\n<td>Section 1245 for personal property (ordinary income rates)<\/td>\n<\/tr>\n<tr>\n<td><strong>Requires specialist<\/strong><\/td>\n<td>No<\/td>\n<td>Yes \u2014 qualified engineer or cost segregation firm<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n<p>The <a href=\"https:\/\/www.taxfoundation.org\/taxedu\/educational-resources\/primer-cost-recovery\/\" target=\"_blank\" rel=\"noopener noreferrer\">Tax Foundation&#8217;s primer on cost recovery<\/a> provides a solid overview of how cost segregation interacts with bonus depreciation rules under current law. The interplay between cost segregation and bonus depreciation (currently phased down from 100%) is where the biggest decisions are made.<\/p>\n<p>The <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> runs both scenarios side by side so you can see the NPV difference without paying for a study first. If the NPV of accelerated deductions is meaningfully larger than the cost of the study, cost segregation is worth exploring with a specialist.<\/p>\n<p>For more depth on the strategy, read the <a href=\"\/blog\/real-estate-depreciation-how-it-works\/\">complete guide to real estate depreciation<\/a>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_Depreciation_Reduces_Your_Tax_Bill\"><\/span><span class=\"ez-toc-section\" id=\"How_Depreciation_Reduces_Your_Tax_Bill\"><\/span><span class=\"ez-toc-section\" id=\"How_Depreciation_Reduces_Your_Tax_Bill\"><\/span><span class=\"ez-toc-section\" id=\"How_Depreciation_Reduces_Your_Tax_Bill\"><\/span>How Depreciation Reduces Your Tax Bill<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Depreciation is a non-cash deduction. You do not write a check \u2014 you just reduce taxable income on paper. That makes it one of the most powerful tax tools in real estate.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Concrete_Dollar_Savings_Dallas_SFR_at_35_Tax_Bracket\"><\/span><span class=\"ez-toc-section\" id=\"Concrete_Dollar_Savings_Dallas_SFR_at_35_Tax_Bracket\"><\/span><span class=\"ez-toc-section\" id=\"Concrete_Dollar_Savings_Dallas_SFR_at_35_Tax_Bracket\"><\/span><span class=\"ez-toc-section\" id=\"Concrete_Dollar_Savings_Dallas_SFR_at_35_Tax_Bracket\"><\/span>Concrete Dollar Savings: Dallas SFR at 35% Tax Bracket<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Back to the Dallas property. Annual depreciation: $9,091. Tax bracket: 35%.<\/p>\n<pre><code>Annual tax savings = Annual depreciation \u00d7 Marginal tax rate\nAnnual tax savings = $9,091 \u00d7 0.35 = $3,181.85 per year<\/code><\/pre>\n<p>Over 10 years of ownership, that is $31,818 in cumulative tax savings \u2014 without selling, without refinancing, without doing anything except owning the property. In 27.5 years (full recovery period), the total tax savings at 35% equals:<\/p>\n<pre><code>Lifetime tax savings = $250,000 \u00d7 0.35 = $87,500<\/code><\/pre>\n<p>That $87,500 comes back to you as reduced tax payments spread over nearly three decades. The cash you keep each year can be reinvested, reducing the effective cost of the asset significantly.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Depreciation_and_Passive_Activity_Rules\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_and_Passive_Activity_Rules\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_and_Passive_Activity_Rules\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_and_Passive_Activity_Rules\"><\/span>Depreciation and Passive Activity Rules<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There is a catch that catches many new investors off guard. Rental income is generally classified as passive income. Depreciation losses are passive losses. You can only offset passive losses against passive income, unless you qualify for an exception.<\/p>\n<p>The two main exceptions:<\/p>\n<ul>\n<li><strong>Active participation exception:<\/strong> If you actively participate in managing the rental (you make management decisions, approve tenants, authorize repairs), you can deduct up to $25,000 in rental losses against ordinary income. This phases out between $100,000 and $150,000 of adjusted gross income (AGI).<\/li>\n<li><strong>Real estate professional status:<\/strong> If more than 50% of your work time and over 750 hours per year are spent in real property trades or businesses in which you materially participate, your rental losses are not subject to the passive activity rules at all. This is how high-income investors get full benefit of large depreciation deductions.<\/li>\n<\/ul>\n<p>Passive losses that cannot be used in the current year are suspended and carried forward. They offset future passive income or release entirely when you sell the property. For more on this, see the <a href=\"\/blog\/real-estate-depreciation-calculator-guide\/\">complete depreciation calculator guide<\/a>.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Depreciation_Shelter_Month-by-Month_Cash_Flow_Impact\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Shelter_Month-by-Month_Cash_Flow_Impact\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Shelter_Month-by-Month_Cash_Flow_Impact\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Shelter_Month-by-Month_Cash_Flow_Impact\"><\/span>Depreciation Shelter: Month-by-Month Cash Flow Impact<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>On the Dallas SFR generating $2,000\/month in rent with $800\/month in expenses (excluding depreciation), taxable income without depreciation would be:<\/p>\n<pre><code>Annual rental income = $24,000\nAnnual operating expenses = $9,600\nTaxable income (no depreciation) = $14,400\nTax at 35% = $5,040 per year<\/code><\/pre>\n<p>Add the $9,091 depreciation deduction:<\/p>\n<pre><code>Taxable income (with depreciation) = $14,400 \u2212 $9,091 = $5,309\nTax at 35% = $1,858 per year\nAnnual tax savings from depreciation = $5,040 \u2212 $1,858 = $3,182<\/code><\/pre>\n<p>The depreciation deduction cuts the tax bill by 63% in this scenario. Run the full cash flow in the <a href=\"\/rental-property-calculator\">rental property calculator<\/a> to see how this plays out across different rent and expense assumptions.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Depreciation_Recapture_What_Happens_When_You_Sell\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Recapture_What_Happens_When_You_Sell\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Recapture_What_Happens_When_You_Sell\"><\/span><span class=\"ez-toc-section\" id=\"Depreciation_Recapture_What_Happens_When_You_Sell\"><\/span>Depreciation Recapture: What Happens When You Sell<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Depreciation is not a free lunch. When you sell the property, the IRS collects depreciation recapture tax on all the deductions you took. This is the part most investors do not plan for until they are looking at a closing statement.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Section_1250_Recapture\"><\/span><span class=\"ez-toc-section\" id=\"Section_1250_Recapture\"><\/span><span class=\"ez-toc-section\" id=\"Section_1250_Recapture\"><\/span><span class=\"ez-toc-section\" id=\"Section_1250_Recapture\"><\/span>Section 1250 Recapture<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>For real property depreciated under straight-line MACRS (which is the standard method for residential and commercial property), depreciation recapture falls under <strong>Section 1250<\/strong>. The recapture tax rate on unrecaptured Section 1250 gain is a maximum of <strong>25%<\/strong> \u2014 not your ordinary income rate, but not the lower long-term capital gains rate either.<\/p>\n<p>Here is how it works on the Dallas SFR if you sell after 10 full years:<\/p>\n<pre><code>Cumulative depreciation taken (Years 1\u201310):\nYear 1: $7,197\nYears 2\u201310: $9,091 \u00d7 9 = $81,819\nTotal depreciation = $7,197 + $81,819 = $89,016\n\nOriginal depreciable basis: $250,000\nAdjusted basis at sale: $250,000 \u2212 $89,016 = $160,984\n\nIf you sell for $450,000:\nTotal gain = $450,000 \u2212 ($310,000 \u2212 $89,016) = $450,000 \u2212 $220,984 = $229,016\n\nOf that gain:\nUnrecaptured Section 1250 gain (taxed at max 25%) = $89,016\nRemaining long-term capital gain (taxed at 0\/15\/20%) = $229,016 \u2212 $89,016 = $140,000<\/code><\/pre>\n<p>The recapture tax on $89,016 at 25% equals $22,254. That is real money. Factor it into every hold\/sell analysis. The <a href=\"\/capital-gains-tax-calculator\">capital gains tax calculator<\/a> handles recapture math and shows the full tax picture on a sale.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"1031_Exchange_Defer_Recapture_Indefinitely\"><\/span><span class=\"ez-toc-section\" id=\"1031_Exchange_Defer_Recapture_Indefinitely\"><\/span><span class=\"ez-toc-section\" id=\"1031_Exchange_Defer_Recapture_Indefinitely\"><\/span><span class=\"ez-toc-section\" id=\"1031_Exchange_Defer_Recapture_Indefinitely\"><\/span>1031 Exchange: Defer Recapture Indefinitely<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A 1031 exchange lets you roll the proceeds from one investment property into another of equal or greater value without triggering capital gains tax or depreciation recapture \u2014 in the year of the exchange. Recapture is deferred, not eliminated. But deferring it for decades while your basis in the new property generates fresh depreciation is a powerful wealth-building strategy.<\/p>\n<p>See the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a> to model a potential exchange and quantify the tax deferral. The <a href=\"\/blog\/1031-exchange-real-estate-guide\/\">1031 exchange guide<\/a> covers the identification and closing timeline rules. Also useful: <a href=\"\/blog\/avoid-capital-gains-tax-on-investment-property\/\">how to avoid capital gains tax on investment property<\/a> and the <a href=\"\/blog\/1031-exchange-capital-gains-calculator\/\">1031 exchange capital gains calculator guide<\/a>.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Cost_Segregation_Recapture_A_Different_Rate\"><\/span><span class=\"ez-toc-section\" id=\"Cost_Segregation_Recapture_A_Different_Rate\"><\/span><span class=\"ez-toc-section\" id=\"Cost_Segregation_Recapture_A_Different_Rate\"><\/span><span class=\"ez-toc-section\" id=\"Cost_Segregation_Recapture_A_Different_Rate\"><\/span>Cost Segregation Recapture: A Different Rate<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Personal property components reclassified through cost segregation are subject to <strong>Section 1245 recapture<\/strong>, taxed at ordinary income rates \u2014 potentially higher than the 25% Section 1250 rate. This is a real consideration when modeling whether cost segregation makes sense for your specific situation. The NPV analysis in the <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> accounts for recapture assumptions in the cost segregation mode.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"5_Common_Depreciation_Mistakes\"><\/span><span class=\"ez-toc-section\" id=\"5_Common_Depreciation_Mistakes\"><\/span><span class=\"ez-toc-section\" id=\"5_Common_Depreciation_Mistakes\"><\/span><span class=\"ez-toc-section\" id=\"5_Common_Depreciation_Mistakes\"><\/span>5 Common Depreciation Mistakes<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_Depreciating_the_Land\"><\/span><span class=\"ez-toc-section\" id=\"1_Depreciating_the_Land\"><\/span><span class=\"ez-toc-section\" id=\"1_Depreciating_the_Land\"><\/span><span class=\"ez-toc-section\" id=\"1_Depreciating_the_Land\"><\/span>1. Depreciating the Land<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>What happens:<\/strong> Investors enter the full purchase price as their depreciable basis, including land value. The IRS does not allow depreciation on land.<\/p>\n<p><strong>Why it matters:<\/strong> Claiming depreciation on land is an error that can trigger an audit and require you to repay deductions with interest and penalties.<\/p>\n<p><strong>Fix:<\/strong> Always get a separate land value from your county tax assessment, appraisal, or a supportable allocation method. Document your basis calculation and keep it in your records for the life of the property.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Starting_Depreciation_on_the_Purchase_Date_Instead_of_the_In-Service_Date\"><\/span><span class=\"ez-toc-section\" id=\"2_Starting_Depreciation_on_the_Purchase_Date_Instead_of_the_In-Service_Date\"><\/span><span class=\"ez-toc-section\" id=\"2_Starting_Depreciation_on_the_Purchase_Date_Instead_of_the_In-Service_Date\"><\/span><span class=\"ez-toc-section\" id=\"2_Starting_Depreciation_on_the_Purchase_Date_Instead_of_the_In-Service_Date\"><\/span>2. Starting Depreciation on the Purchase Date Instead of the In-Service Date<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>What happens:<\/strong> Investors start the depreciation clock on the closing date. If the property is not immediately available for rent \u2014 because of renovation, permitting, or other delays \u2014 the correct date is when it is placed in service.<\/p>\n<p><strong>Why it matters:<\/strong> Starting too early inflates deductions. Starting too late (through ignorance) means you lose deductions you were entitled to.<\/p>\n<p><strong>Fix:<\/strong> Document the date the property was ready and available for rent. Keep photos, emails with contractors, or listing dates as evidence. Run the date through the <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> to confirm year-one deductions using the correct in-service date.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Forgetting_to_Depreciate_Capital_Improvements_Separately\"><\/span><span class=\"ez-toc-section\" id=\"3_Forgetting_to_Depreciate_Capital_Improvements_Separately\"><\/span><span class=\"ez-toc-section\" id=\"3_Forgetting_to_Depreciate_Capital_Improvements_Separately\"><\/span><span class=\"ez-toc-section\" id=\"3_Forgetting_to_Depreciate_Capital_Improvements_Separately\"><\/span>3. Forgetting to Depreciate Capital Improvements Separately<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>What happens:<\/strong> Investors add a new roof ($18,000) or HVAC system ($9,000) to the property and either expense it or ignore it for depreciation. Capital improvements must be depreciated separately over their own recovery periods \u2014 not folded into the original purchase basis mid-ownership.<\/p>\n<p><strong>Why it matters:<\/strong> A roof replacement has a 27.5-year recovery period (residential). An HVAC system may qualify for a 5-year or 15-year period depending on classification. Depreciating each improvement on its own schedule maximizes deductions and avoids errors.<\/p>\n<p><strong>Fix:<\/strong> Track every capital improvement with its own depreciation schedule. When you sell, your adjusted basis must account for all improvements added and all depreciation taken \u2014 on the original structure and on each improvement separately. The <a href=\"\/blog\/real-estate-depreciation-how-it-works\/\">depreciation explainer<\/a> covers improvements in detail.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_Ignoring_Depreciation_Recapture_in_HoldSell_Decisions\"><\/span><span class=\"ez-toc-section\" id=\"4_Ignoring_Depreciation_Recapture_in_HoldSell_Decisions\"><\/span><span class=\"ez-toc-section\" id=\"4_Ignoring_Depreciation_Recapture_in_HoldSell_Decisions\"><\/span><span class=\"ez-toc-section\" id=\"4_Ignoring_Depreciation_Recapture_in_HoldSell_Decisions\"><\/span>4. Ignoring Depreciation Recapture in Hold\/Sell Decisions<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>What happens:<\/strong> Investors look at the sale price and their original purchase price to estimate profit. They do not account for the adjusted basis after depreciation, which means they underestimate the taxable gain and the recapture tax.<\/p>\n<p><strong>Why it matters:<\/strong> On a property held for 10 years with $89,000 in cumulative depreciation, the adjusted basis is $89,000 lower than the original purchase price. That $89,000 is taxed at up to 25% when you sell \u2014 a $22,250 bill that is easy to miss in a back-of-envelope calculation.<\/p>\n<p><strong>Fix:<\/strong> Use the <a href=\"\/capital-gains-tax-calculator\">capital gains tax calculator<\/a> before deciding to sell. It factors in adjusted basis, recapture, and your bracket. Also run the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a> to compare keeping the gain deferred versus paying tax now.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"5_Skipping_a_Cost_Segregation_Analysis_on_High-Value_Properties\"><\/span><span class=\"ez-toc-section\" id=\"5_Skipping_a_Cost_Segregation_Analysis_on_High-Value_Properties\"><\/span><span class=\"ez-toc-section\" id=\"5_Skipping_a_Cost_Segregation_Analysis_on_High-Value_Properties\"><\/span><span class=\"ez-toc-section\" id=\"5_Skipping_a_Cost_Segregation_Analysis_on_High-Value_Properties\"><\/span>5. Skipping a Cost Segregation Analysis on High-Value Properties<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>What happens:<\/strong> Investors with properties over $500,000 default to straight-line depreciation and leave tens of thousands of dollars in early-year deductions on the table.<\/p>\n<p><strong>Why it matters:<\/strong> On a $600,000 commercial property, a cost segregation study might reclassify $80,000\u2013$120,000 of assets into 5-year or 15-year property. At 35% marginal rate and bonus depreciation, that can produce an additional $28,000\u2013$42,000 in deductions in year one alone \u2014 far exceeding the $8,000\u2013$12,000 cost of the study.<\/p>\n<p><strong>Fix:<\/strong> Run the cost segregation mode in the <a href=\"\/depreciation-calculator\">real estate depreciation calculator<\/a> to get a rough NPV comparison before commissioning a formal study. If the numbers look promising, hire a qualified cost segregation engineer. The <a href=\"https:\/\/www.cost-seg.com\/resources\/what-is-cost-segregation\/\" target=\"_blank\" rel=\"noopener noreferrer\">American Society of Cost Segregation Professionals<\/a> maintains a directory of qualified practitioners.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div itemscope itemtype=\"https:\/\/schema.org\/FAQPage\">\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"Can_I_use_a_real_estate_depreciation_calculator_for_any_property_type\"><\/span><span class=\"ez-toc-section\" id=\"Can_I_use_a_real_estate_depreciation_calculator_for_any_property_type\"><\/span><span class=\"ez-toc-section\" id=\"Can_I_use_a_real_estate_depreciation_calculator_for_any_property_type\"><\/span><span class=\"ez-toc-section\" id=\"Can_I_use_a_real_estate_depreciation_calculator_for_any_property_type\"><\/span>Can I use a real estate depreciation calculator for any property type?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:block\">\n<p itemprop=\"text\">Yes. The <a href=\"\/depreciation-calculator\">real estate depreciation calculator<\/a> handles residential rental property (27.5-year MACRS), commercial real property (39-year MACRS), and cost segregation scenarios for both. For residential, enter single-family, duplex, triplex, fourplex, or apartment buildings where at least 80% of gross rental income comes from dwelling units. For commercial, enter office buildings, retail, industrial, or mixed-use properties that do not meet the residential threshold.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"How_do_I_find_the_land_value_for_my_rental_property\"><\/span><span class=\"ez-toc-section\" id=\"How_do_I_find_the_land_value_for_my_rental_property\"><\/span><span class=\"ez-toc-section\" id=\"How_do_I_find_the_land_value_for_my_rental_property\"><\/span><span class=\"ez-toc-section\" id=\"How_do_I_find_the_land_value_for_my_rental_property\"><\/span>How do I find the land value for my rental property?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">The most widely used method is your county property tax assessment. Most counties break out land value from improvement value on the assessment notice. You can also use the land-to-improvement ratio from the assessment applied to your purchase price. A formal appraisal with a land allocation is the most defensible method for high-value properties. Whatever source you use, document it and keep it with your tax records. A typical land allocation for an urban single-family rental runs 15%\u201330% of purchase price, though this varies widely by market.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"What_is_the_depreciation_recapture_rate_when_I_sell\"><\/span><span class=\"ez-toc-section\" id=\"What_is_the_depreciation_recapture_rate_when_I_sell\"><\/span><span class=\"ez-toc-section\" id=\"What_is_the_depreciation_recapture_rate_when_I_sell\"><\/span><span class=\"ez-toc-section\" id=\"What_is_the_depreciation_recapture_rate_when_I_sell\"><\/span>What is the depreciation recapture rate when I sell?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">For residential and commercial real property depreciated under straight-line MACRS, the recapture rate on unrecaptured Section 1250 gain is a maximum of 25%. This is separate from your long-term capital gains rate on the remaining gain. For personal property reclassified through cost segregation, Section 1245 recapture applies at ordinary income rates, which can be higher. Use the <a href=\"\/capital-gains-tax-calculator\">capital gains tax calculator<\/a> to model the full tax outcome before you decide to sell.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"Does_depreciation_reduce_my_taxable_income_even_if_the_property_is_cash_flow_positive\"><\/span><span class=\"ez-toc-section\" id=\"Does_depreciation_reduce_my_taxable_income_even_if_the_property_is_cash_flow_positive\"><\/span><span class=\"ez-toc-section\" id=\"Does_depreciation_reduce_my_taxable_income_even_if_the_property_is_cash_flow_positive\"><\/span><span class=\"ez-toc-section\" id=\"Does_depreciation_reduce_my_taxable_income_even_if_the_property_is_cash_flow_positive\"><\/span>Does depreciation reduce my taxable income even if the property is cash flow positive?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">Yes. Depreciation is a non-cash accounting deduction. Even if your rental property generates positive cash flow \u2014 rent exceeds all expenses and the mortgage payment \u2014 depreciation can reduce or eliminate the taxable portion of that income. It is possible to collect $12,000 in annual net rental income and pay tax on only $3,000 or even $0 after the depreciation deduction. This is one of the core tax advantages of owning rental property versus other income-producing investments. See <a href=\"\/blog\/how-to-analyze-rental-property-investment\/\">how to analyze a rental property investment<\/a> for a full treatment.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"What_happens_to_unused_depreciation_losses_if_my_income_is_too_high\"><\/span><span class=\"ez-toc-section\" id=\"What_happens_to_unused_depreciation_losses_if_my_income_is_too_high\"><\/span><span class=\"ez-toc-section\" id=\"What_happens_to_unused_depreciation_losses_if_my_income_is_too_high\"><\/span><span class=\"ez-toc-section\" id=\"What_happens_to_unused_depreciation_losses_if_my_income_is_too_high\"><\/span>What happens to unused depreciation losses if my income is too high?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">If your adjusted gross income (AGI) exceeds $150,000 and you do not qualify as a real estate professional, passive rental losses from depreciation are suspended \u2014 they cannot offset ordinary income in the current year. Those suspended losses are carried forward and can offset future passive income from rentals or other passive activities. When you sell the property, all suspended passive losses are released and can offset the gain from the sale, reducing your tax bill significantly. This is sometimes called the &#8220;tax deferral within a deferral&#8221; benefit of holding rental property long-term.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"How_does_a_1031_exchange_interact_with_accumulated_depreciation\"><\/span><span class=\"ez-toc-section\" id=\"How_does_a_1031_exchange_interact_with_accumulated_depreciation\"><\/span><span class=\"ez-toc-section\" id=\"How_does_a_1031_exchange_interact_with_accumulated_depreciation\"><\/span><span class=\"ez-toc-section\" id=\"How_does_a_1031_exchange_interact_with_accumulated_depreciation\"><\/span>How does a 1031 exchange interact with accumulated depreciation?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">A 1031 exchange defers both capital gains tax and depreciation recapture \u2014 you do not pay either when you complete the exchange. However, the replacement property inherits a carryover basis that reflects the cumulative depreciation taken on the relinquished property. This means your annual depreciation deduction on the replacement property is based on a lower adjusted basis, not the new purchase price. Over time, consecutive 1031 exchanges allow you to defer recapture indefinitely while continuing to take depreciation on each successive property. Use the <a href=\"\/1031-exchange-calculator\">1031 exchange calculator<\/a> and the <a href=\"\/blog\/1031-exchange-capital-gains-calculator\/\">1031 exchange capital gains calculator guide<\/a> to model the math. Also see the <a href=\"\/blog\/capital-gains-tax-calculator-guide\/\">capital gains tax calculator guide<\/a> for how basis carryover is calculated.<\/p>\n<\/div>\n<\/div>\n<div class=\"schema-faq-section\" itemscope itemtype=\"https:\/\/schema.org\/Question\">\n<h3 class=\"schema-faq-question font-bold text-lg cursor-pointer\" itemprop=\"name\" onclick=\"const a=this.nextElementSibling;a.style.display=a.style.display==='none'?'block':'none'\"><span class=\"ez-toc-section\" id=\"Is_cost_segregation_worth_it_for_a_property_under_300000\"><\/span><span class=\"ez-toc-section\" id=\"Is_cost_segregation_worth_it_for_a_property_under_300000\"><\/span><span class=\"ez-toc-section\" id=\"Is_cost_segregation_worth_it_for_a_property_under_300000\"><\/span><span class=\"ez-toc-section\" id=\"Is_cost_segregation_worth_it_for_a_property_under_300000\"><\/span>Is cost segregation worth it for a property under $300,000?<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"schema-faq-answer py-2\" itemprop=\"acceptedAnswer\" itemscope itemtype=\"https:\/\/schema.org\/Answer\" style=\"display:none\">\n<p itemprop=\"text\">Usually not. A formal cost segregation study from a qualified engineering firm typically costs $5,000\u2013$15,000. On a $300,000 residential property, the reclassifiable components (appliances, carpeting, certain fixtures, land improvements) might total $30,000\u2013$50,000. Accelerating that over 5\u201315 years instead of 27.5 produces modest additional early-year deductions. At 35%, the NPV of the accelerated deductions rarely exceeds the study cost for properties under $300,000\u2013$400,000. Run the cost segregation mode in the <a href=\"\/depreciation-calculator\">depreciation calculator<\/a> to see whether the numbers work for your specific situation before commissioning a study. At higher property values, particularly for new construction or major renovations, cost segregation almost always pencils out.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<h2><span class=\"ez-toc-section\" id=\"Related_Calculators\"><\/span><span class=\"ez-toc-section\" id=\"Related_Calculators\"><\/span><span class=\"ez-toc-section\" id=\"Related_Calculators\"><\/span><span class=\"ez-toc-section\" id=\"Related_Calculators\"><\/span>Related Calculators<span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Depreciation is one input into a broader investment analysis. These calculators work together to give you the full picture on any rental or commercial property.<\/p>\n<ul>\n<li><a href=\"\/depreciation-calculator\"><strong>Depreciation Calculator<\/strong><\/a> \u2014 Annual deduction, full depreciation schedule, cost segregation comparison<\/li>\n<li><a href=\"\/rental-property-calculator\"><strong>Rental Property Calculator<\/strong><\/a> \u2014 Full pro forma: NOI, cash flow, CoC, cap rate in one place<\/li>\n<li><a href=\"\/capital-gains-tax-calculator\"><strong>Capital Gains Tax Calculator<\/strong><\/a> \u2014 Models recapture, long-term gains, and net proceeds on sale<\/li>\n<li><a href=\"\/1031-exchange-calculator\"><strong>1031 Exchange Calculator<\/strong><\/a> \u2014 Quantifies tax deferral and compares exchange vs. sell scenarios<\/li>\n<li><a href=\"\/property-cash-flow-calculator\"><strong>Property Cash Flow Calculator<\/strong><\/a> \u2014 Monthly and annual after-tax cash flow with depreciation shelter built in<\/li>\n<li><a href=\"\/noi-calculator\"><strong>NOI Calculator<\/strong><\/a> \u2014 Net operating income before depreciation and debt service<\/li>\n<li><a href=\"\/cap-rate-calculator\"><strong>Cap Rate Calculator<\/strong><\/a> \u2014 Property value and return on a debt-free basis<\/li>\n<li><a href=\"\/cash-on-cash-calculator\"><strong>Cash-on-Cash Calculator<\/strong><\/a> \u2014 Annual return on your actual cash invested<\/li>\n<li><a href=\"\/real-estate-roi-calculator\"><strong>Real Estate ROI Calculator<\/strong><\/a> \u2014 Total return including appreciation, cash flow, and tax benefits<\/li>\n<li><a href=\"\/calculators\"><strong>All Calculators<\/strong><\/a> \u2014 Full library of free real estate investment tools<\/li>\n<\/ul>\n<p>For further reading: the <a href=\"\/blog\/net-operating-income-guide\/\">net operating income guide<\/a> covers how depreciation fits into property valuation, and the <a href=\"\/blog\/investment-property-down-payment-guide\/\">investment property down payment guide<\/a> shows how your financing structure affects depreciable basis and overall returns. The <a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/p946.pdf\" target=\"_blank\" rel=\"noopener noreferrer\">IRS Publication 946 PDF<\/a> is the primary reference for all MACRS depreciation rules and tables.<\/p>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"900\" height=\"480\" src=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-dallas-sfr-example.jpg\" alt=\"Real estate depreciation calculation for Dallas SFR showing 9091 annual depreciation\" class=\"wp-image-744\" srcset=\"https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-dallas-sfr-example.jpg 900w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-dallas-sfr-example-300x160.jpg 300w, https:\/\/arvcalc.com\/blog\/wp-content\/uploads\/2026\/08\/depreciation-dallas-sfr-example-768x410.jpg 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><figcaption>Dallas SFR: $250K depreciable basis \u00f7 27.5 = $9,091\/year<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Use a real estate depreciation calculator and you can find your annual deduction in under two minutes \u2014 no spreadsheet, no accountant call required. The IRS lets you deduct the&#8230;<\/p>\n","protected":false},"author":1,"featured_media":750,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-740","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-guides"],"_links":{"self":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts\/740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/comments?post=740"}],"version-history":[{"count":4,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts\/740\/revisions"}],"predecessor-version":[{"id":748,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/posts\/740\/revisions\/748"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/media\/750"}],"wp:attachment":[{"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/media?parent=740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/categories?post=740"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/arvcalc.com\/blog\/wp-json\/wp\/v2\/tags?post=740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}