Rental Property Depreciation Explained for Landlords

Depreciation lets you deduct the cost of a rental building gradually over its useful life, even though the building may not be losing value in the real world. For many landlords it is one of the largest deductions each year. It also has consequences when you sell, so it is worth understanding. This guide covers the basics in plain English. Tax rules and thresholds change, so confirm current details on IRS.gov or with a CPA.

What depreciation is

When you buy a rental, you cannot normally deduct the whole purchase price in the first year. Instead, the tax code lets you recover the cost of the building over a set number of years. Each year you deduct a slice. That slice reduces your taxable rental income.

Two points trip people up:

• Depreciation is not optional. The IRS generally treats the allowed depreciation as reducing your basis whether or not you claim it. Skipping it does not avoid the effect at sale.
• It is a tax concept, not a cash cost. You do not write a check for depreciation, which is why it can turn a profitable rental into a small tax loss on paper.

What you can and cannot depreciate

Land never wears out for tax purposes, so you must split your purchase price between land and building. County property tax assessments often show a land and improvement split that some owners use as a starting point. Ask your tax preparer how to allocate it for your situation.

The 27.5-year schedule

For residential rental property in the U.S., the standard recovery period is 27.5 years, using the straight-line method. In simple terms, you spread the building’s cost evenly across those years, with special rules for the first and last year based on when you placed the property in service. The IRS uses a mid-month convention, so the month you start renting matters.

A simple, illustrative example only: if the building portion of your basis were $200,000, dividing by 27.5 gives roughly $7,273 for a full year. The first and last years are usually smaller because of the mid-month convention. Your own figure depends on your purchase price, closing costs that can be added to basis, the land allocation, and the month you started renting.

When depreciation starts and stops

Depreciation generally begins when the property is placed in service, meaning it is ready and available to rent, not when you sign the closing papers. It stops when you sell it, take it out of rental use, or have fully recovered its cost.

If you convert a home you lived in into a rental, the starting basis rules are different from a purchase. Under IRS Publication 527, the basis for depreciation is generally the lesser of your adjusted basis or the property’s fair market value when you change it to rental use. Ask a professional to help you calculate it.

Improvements and appliances

Larger improvements you make after purchase are generally added to the property and depreciated rather than deducted all at once. Items like appliances, carpet, and furniture used in a residential rental are generally 5-year property under the IRS tables. Details and options, such as bonus depreciation or special elections, change over time and depend on your facts. For example, the 2025 tax law (P.L. 119-21) made a 100% additional first-year (bonus) depreciation deduction permanent for qualified property acquired after January 19, 2025, generally property with a recovery period of 20 years or less, such as appliances and carpet, but not the residential building itself. The IRS explains the interim rules, including an election to take a smaller percentage in the first tax year ending after that date, in Notice 2026-11. Ask your preparer what applies to your assets and dates. See repairs vs. improvements for tax purposes for how to tell the two apart.

Where it goes on your return

Most individual landlords report depreciation on Schedule E, supported by Form 4562 in the year a new asset is placed in service (and in some other cases, such as listed property like a car). The IRS explains the rules in Publication 527, Residential Rental Property, and the detailed depreciation tables are in Publication 946. Keep a depreciation schedule for each property that lists the asset, date placed in service, basis, method, and prior deductions taken. Your preparer can maintain it, but you should keep a copy (see rental record keeping).

What happens when you sell

Depreciation lowers your tax basis in the property, which can increase your taxable gain when you sell. The portion of gain tied to depreciation you took, or were allowed to take, is generally taxed under special recapture rules. That is not a reason to skip depreciation, since it usually saves tax in the years you hold. It is a reason to plan ahead for a sale and to talk with a tax professional before you list the property.

Common mistakes

1. Depreciating the land along with the building
2. Deducting a major improvement in one year when it should be depreciated
3. Forgetting to start depreciation in the first rental year
4. Not tracking closing costs and improvements that increase basis
5. Losing the paperwork that shows what you paid

For the wider picture of what else you can write off, read landlord tax deductions.

Next steps

Pull your closing statement and any improvement invoices for each property. Confirm your land and building allocation, the date each property was placed in service, and whether your current depreciation schedule is correct. If you find missed depreciation, ask a CPA how to fix it rather than guessing. The fix may be an amended return or a change in accounting method (Form 3115), as described in Publication 946, depending on your situation. Then add a yearly check to your routine, and budget for the tax effects of a future sale as part of your rental property budget and reserves.