How is accumulated depreciation calculated?

Accumulated depreciation equals annual depreciation multiplied by years held, capped at the total depreciable basis.

Real Estate Depreciation Calculator — Estimate Annual Tax Savings (2026)

Q: What is the depreciation period for residential rental properties?

Residential rental properties depreciate over 27.5 years. Commercial properties use a 39-year recovery period.

How much can depreciation reduce your taxes?

On a typical rental property, depreciation can reduce taxable income by $10,000–$15,000 per year. That can mean $3,000–$5,000+ in annual tax savings.

Your exact number depends on:

Property purchase price
Land allocation
Capital improvements
Recovery period (27.5 or 39 years)

Important Context

•Land is NOT depreciable
•Depreciation is a non-cash deduction
•It reduces taxable income, not cash in your bank account
•It may be partially taxed later (recapture)

This Calculator Does

✓Separates land vs. building value
✓Calculates annual and monthly depreciation
✓Tracks accumulated depreciation
✓Shows potential tax shield
✓Highlights recapture exposure

What Depreciation Really Means

Here's the cheat code: the IRS lets you deduct building "wear and tear" — without spending any actual cash.

↑

Property value may go up

→

Bank account stays the same

↓

Taxable income goes down

That's why depreciation is one of the most powerful tools in real estate investing. It reduces the taxes you owe today — without impacting your cash flow.

Formula

Depreciable Basis = Total Cost Basis − Land Value

Annual Depreciation = Depreciable Basis ÷ Recovery Period

Land vs. Building: The Critical Split

Only the building is depreciated. Land is never depreciable under IRS rules.

Land (Not Depreciable)

•The dirt and ground itself
•Does not wear out over time
•Must be excluded from depreciable basis

Building (Depreciable)

•Structure, roof, systems
•Depreciates over useful life
•27.5 years (residential) or 39 years (commercial)

Disclaimer

Land percentage in this calculator is applied to purchase price only. Major improvements may change actual allocation. Incorrect land allocation can distort results — when in doubt, use county assessment records or an appraisal.

The Tax Shield: Real Money

Depreciation creates real tax savings — not just accounting entries.

Example

Annual depreciation: $12,000

Marginal tax rate: 25%

→ ~$3,000 less in taxes each year

Over a full 27.5-year depreciation schedule, that's $82,500 in cumulative tax savings (at 25% rate on a $300,000 depreciable basis).

Tax shield depends on taxable income, passive activity rules, and your overall tax situation. It does not guarantee tax savings. This calculator is educational, not tax advice.

Depreciation Recapture: Not a Penalty

Yes — some depreciation may be taxed when you sell. But think of it as tax deferral + cash flow optimization, not a penalty.

Benefit

You defer taxes for years — often decades

Cash Flow

You keep more cash in your pocket today

Strategy

Use a 1031 exchange to defer recapture

→ Capital Gains Tax Calculator → 1031 Exchange Calculator

Special Cases to Know

Mixed-use Property

May require allocation between rental, business, and personal portions. A custom recovery period is required — do not use standard residential or commercial periods without professional guidance.

Short-term Rental (STR)

If the average rental period is less than 7 days, the property may be treated as commercial property (39-year recovery period), not residential (27.5 years). Confirm with a tax professional before filing.

Capital Improvements

Real IRS rules may require separate depreciation schedules for major improvements. This calculator treats improvements as part of total basis using the same recovery period — a simplification. Consult your tax advisor for accuracy.

First-Year Depreciation

First-year depreciation is simplified as a full year in this calculator. Actual IRS mid-month convention means you may only claim a partial year in the first year of ownership.

What This Calculator Does NOT Do

✗Model cost segregation studies

✗Calculate bonus depreciation (179 / 168k)

✗Apply IRS mid-month convention exactly

✗Guarantee tax savings or outcomes

✗Provide CPA-level tax advice

✗Handle separate improvement schedules

This calculator uses simplified straight-line depreciation for estimation purposes. It is educational and not a substitute for professional tax advice. Results should be reviewed with a CPA or tax professional before filing.

Frequently Asked Questions

Can I depreciate the land value of my rental property?

No. Land is never depreciable under IRS rules. Only the building structure and certain improvements can be depreciated. You must separate land value from your total cost basis before calculating depreciation. Incorrect land allocation is one of the most common depreciation mistakes investors make.

What is the depreciation period for residential rental properties?

Residential rental properties depreciate over 27.5 years using straight-line depreciation. Commercial properties use a 39-year recovery period. Some mixed-use and special-use properties may require different periods — always confirm with a tax professional.

What is depreciation recapture and how does it work?

Depreciation recapture is when the IRS taxes the depreciation you previously deducted at the time of sale. For real estate, this is taxed at a maximum rate of 25% (Section 1250 unrecaptured gain). It applies to the accumulated depreciation you've taken, not the full sale gain. Strategies like 1031 exchanges can defer recapture.

How is depreciation calculated for a short-term rental?

Short-term rental classification depends on the average rental period. If the average rental stay is less than 7 days, the IRS may classify the property as commercial (39-year recovery). If the average stay is 7–30 days with substantial owner services, additional rules may apply. Consult a tax professional if you're renting on Airbnb or VRBO.

Does depreciation reduce my actual cash flow?

No. Depreciation is a non-cash deduction. It reduces your taxable income without reducing your bank balance. This is what makes it so powerful — you can shelter rental income from taxes without spending any additional money. However, when you sell, the deferred tax comes due (unless you use a 1031 exchange).

What is accumulated depreciation and why does it matter?

Accumulated depreciation is the total amount of depreciation you've taken over the years you've owned the property. It reduces your adjusted basis in the property, which increases your taxable gain when you sell. It also represents your recapture exposure — the amount that may be taxed at up to 25% when you sell.

Can I depreciate capital improvements separately?

Yes, under actual IRS rules, major capital improvements may need to be depreciated on separate schedules with potentially different recovery periods (e.g., new roof vs. new appliances). This calculator simplifies by treating improvements as part of total basis with the same recovery period. Consult a CPA for precise treatment of significant improvements.

Related Calculators

Depreciation works together with these tools for complete tax analysis.

Capital Gains Tax CalculatorEstimate total tax on property sale — includes depreciation recapture.Open →1031 Exchange CalculatorDefer capital gains and depreciation recapture with a tax-free exchange.Open →Real Estate ROI CalculatorComprehensive return analysis — cash flow, appreciation, and equity build-up.Open →Rental Property ROI CalculatorLifetime rental ROI with depreciation as a wealth-building component.Open →NOI CalculatorNet Operating Income — pairs with depreciation for complete P&L picture.Open →Cap Rate CalculatorCapitalization rate — property value analysis before and after depreciation.Open →

Real Estate Depreciation Calculator

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