The Complete Guide to Rental Property Depreciation (2026)
How to legally reduce your rental income taxes by thousands every year
If you own rental property and are not claiming depreciation, you are leaving money on the table—potentially $3,000 to $10,000+ per year, per property. The IRS expects you to take this deduction.
What Is Rental Property Depreciation?
Depreciation is a tax deduction that accounts for the wear and tear on your rental property over time. Even though your property might be appreciating in value, the IRS allows you to deduct a portion of the building cost each year.
Quick Example
You buy a rental property for $300,000:
- Land value: $60,000 (not depreciable)
- Building value: $240,000 (depreciable)
- Annual depreciation: $240,000 ÷ 27.5 years = $8,727/year
If you are in the 24% tax bracket, that is $2,094 in tax savings every year for 27.5 years.
The 27.5-Year Rule
Residential rental properties are depreciated over 27.5 years using the straight-line method. This means you deduct the same amount each year.
Commercial properties use 39 years, but most landlords reading this have residential rentals.
What Can You Depreciate?
✓ Depreciable:
- The building/structure itself
- Improvements (new roof, HVAC)
- Appliances
- Carpeting and flooring
- Landscaping improvements
✗ NOT Depreciable:
- Land (it does not wear out)
- Repairs (expensed immediately)
- Personal property
Depreciation Recapture
When you sell, you will owe taxes on the depreciation you claimed. The IRS recaptures your depreciation at a rate of 25%.
Important: You owe recapture even if you did not claim depreciation. The IRS taxes depreciation allowed or allowable. Always take your depreciation!
Real-World Example
Sarah owns a single-family rental with $30,000 annual rent and $23,400 in operating expenses. Her property generates $6,600 in cash flow.
With depreciation of $8,727/year, her net taxable income is -$2,127—a paper loss that saves her $2,094 in taxes.
Repairs vs Improvements
This confuses almost every new landlord. The key question: Are you fixing something broken, or making something better?
| Type | Example | Tax Treatment |
|---|---|---|
| Repair | Fixing a leaky faucet ($150) | Expense immediately |
| Improvement | New HVAC system ($5,000) | Depreciate over 27.5 years |
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