What is real estate depreciation?

Depreciation is a tax deduction that allows property owners to deduct the cost of investment property over time, even as the property appreciates in value.

How long do you depreciate residential property?

Residential rental property is depreciated over 27.5 years. Commercial property is depreciated over 39 years. Land cannot be depreciated.

What is cost segregation?

Cost segregation accelerates depreciation by identifying components that can be depreciated over 5, 7, or 15 years instead of 27.5 or 39 years.

Is depreciation really free money?

Depreciation defers taxes, it doesn't eliminate them. When you sell, depreciation is recaptured and taxed. However, 1031 exchanges can continue deferral.

Free Calculator

Depreciation Calculator

Calculate annual depreciation deductions for investment properties using IRS straight-line depreciation rules. Essential for tax planning and investment analysis.

Property Information

Enter property cost basis details

Property Type

Purchase Price

Land Value

Land is not depreciable. Check county records or use 20% as estimate.

Capital Improvements

Renovations, additions, etc. added to cost basis.

Depreciation Summary

Based on IRS straight-line depreciation

Annual Depreciation Deduction

Depreciable Basis$0

Recovery Period27.5 years

Monthly Depreciation$0

Est. Annual Tax Savings (25%)$0

Total Depreciation Over Life$0

This calculator uses simplified straight-line depreciation. Consult a tax professional for cost segregation, bonus depreciation, and other strategies.

How It Works

1. Enter Property Details

Input your purchase price, land value, and any capital improvements to establish your cost basis.

2. Select Property Type

Choose residential (27.5 years) or commercial (39 years) to apply the correct IRS recovery period.

3. Get Your Deduction

Instantly see your annual and monthly depreciation deduction plus estimated tax savings.

Frequently Asked Questions

Understanding Real Estate Depreciation for Tax Savings

Real estate depreciation is one of the most powerful tax benefits available to property investors. By allowing you to deduct a portion of your property's cost each year, depreciation can significantly reduce your taxable rental income and even create paper losses that offset other income.

How the IRS Depreciation Rules Work

The IRS uses the Modified Accelerated Cost Recovery System (MACRS) for real estate depreciation. Residential rental properties are depreciated over 27.5 years using the straight-line method, meaning you deduct an equal amount each year. Commercial properties follow a 39-year schedule. To calculate your depreciable basis, subtract the land value from your purchase price and add any capital improvements.

Maximizing Your Depreciation Benefits

While this calculator uses standard straight-line depreciation, investors should be aware of advanced strategies like cost segregation studies, bonus depreciation, and Section 179 deductions that can accelerate tax benefits. These strategies can be particularly valuable for larger properties or investors with substantial income to offset. Always consult with a qualified tax professional to optimize your depreciation strategy and ensure compliance with current tax laws.