How to depreciate a rental property

The short version

1. Start with the purchase price and add closing costs you must capitalize.
2. Subtract the land. Land is never depreciated.
3. Divide what is left by 27.5 for a full year of straight-line depreciation.
4. In the first year, use the mid-month convention: count the month you started renting as half a month.
5. Give every later improvement its own 27.5-year schedule from its own date.

A worked example

A rental bought for $250,000 with $5,000 of capitalized closing costs, of which $50,000 is land, and placed in service in June 2025:

The yearly amounts add up to the basis exactly over the recovery period; the last year is a partial one. The figures above come from the same arithmetic Rental Ledger uses, so you can enter the same numbers and compare. They can differ from the IRS percentage tables by a few cents because the tables round to three decimals.

Where people lose money or get it wrong

• Depreciating the land. It overstates the deduction and is easy for a preparer to spot.
• Starting the clock at the purchase date. Depreciation starts when the property is ready and available to rent, which can be later.
• Expensing an improvement. A new roof logged as a repair is deducted all at once when it should be spread over 27.5 years.
• Forgetting what depreciation does at sale. It lowers your basis, so the gain on a sale is larger, and the part of it that is depreciation is taxed at up to 25%.
• Missing the loss limits. A rental loss can be limited by the passive loss rules; the $25,000 allowance phases out between $100,000 and $150,000 of modified adjusted gross income.

Do it with your own numbers

Rental Ledger takes your properties, rent and expenses and produces Schedule E by property, the depreciation above, the passive loss allowance with carried-forward losses, and a sale-year estimate. It is free, needs no account and keeps everything on your device.

Common questions

How many years do you depreciate a residential rental property?

27.5 years, straight line, for residential rental property placed in service in the US. Only the building is depreciated; land is not, so the purchase price has to be split between the two.

What is the mid-month convention?

The property is treated as placed in service in the middle of the month, so the first calendar year gets a half month less than a full 12 months' worth. A home placed in service in June gets 6.5 months of depreciation in its first year, not 7.

What counts as the depreciable basis?

Generally the purchase price plus capitalized closing costs, minus the value of the land. The land share often comes from the county tax assessor's ratio of land to total value; if you have no better figure, ask your preparer.

Do improvements get their own depreciation clock?

Yes. A new roof or a kitchen remodel is depreciated over 27.5 years starting from the month it was placed in service, separately from the house. A repair that merely keeps the property in working order is deducted in the year paid. Telling the two apart is a judgment call, so Rental Ledger flags large repairs rather than deciding for you.

What if I never claimed depreciation?

Depreciation is treated as allowed whether or not you claimed it, which matters when you sell: the gain is computed as if you had taken it. If prior years were missed, a preparer can usually fix it with Form 3115 rather than amended returns.

Is anything I enter uploaded anywhere?

No. Rental Ledger runs entirely in your browser; nothing you enter is uploaded.