Rental Property Depreciation Calculator - Tax Deduction Analysis

Understanding Rental Property Depreciation

Rental property depreciation is one of the most powerful tax benefits available to real estate investors. This non-cash deduction allows you to reduce your taxable income by accounting for the wear and tear on your investment property over time, significantly improving your after-tax returns.

How Depreciation Works

The IRS allows investors to depreciate residential rental properties over 27.5 years and commercial properties over 39 years using the straight-line method. This means you can deduct an equal amount each year, providing consistent tax benefits throughout the depreciation period.

Key Depreciation Rules

• Land vs. Improvements: Only the building and improvements can be depreciated, not the land
• Residential vs. Commercial: 27.5 years for residential, 39 years for commercial properties
• First-Year Convention: Half-month convention applies in the first year of ownership
• Cost Segregation: Some components may qualify for accelerated depreciation (5-15 years)
• Recapture: Depreciation recapture taxed at 25% upon property sale

Maximizing Depreciation Benefits

• Consider cost segregation studies for newer properties
• Keep accurate records of all capital improvements
• Review property tax assessments for land vs. improvement values
• Consult with tax professionals for complex situations
• Plan for depreciation recapture in exit strategies