Property Depreciation (MACRS) Calculator
Depreciation is the quiet superpower of rental real estate: a non-cash paper expense the IRS lets you deduct every year to shelter your rental income from tax, even as the property itself may be appreciating in value. Under the MACRS system, residential rental buildings are written off over 27.5 years and commercial property over 39, using straight-line depreciation on the building only — the land it sits on cannot be depreciated. This calculator does the work of separating your depreciable basis from land value, dividing it across the recovery period to find your full annual deduction, and applying the IRS mid-month convention to compute a correct, prorated first-year figure based on the month you placed the property in service. Understanding these deductions is essential for accurate cash-flow projections and for anticipating the depreciation recapture tax you may owe on a future sale.
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Results update live as you type. Estimates only — not financial, tax, or investment advice.
The Formula
Annual Depreciation = (Purchase Price − Land Value) ÷ Recovery Period
Understanding the Property Depreciation (MACRS) Calculator
Depreciation is the tax deduction that makes rental real estate so efficient: the IRS lets you write off the wear-and-tear on a building over time, even in years the property is actually gaining market value. Under MACRS, residential rental buildings are depreciated straight-line over 27.5 years and commercial property over 39 years. Only the building depreciates — land never does — so allocating a reasonable portion of your purchase price to land is a required and scrutinized step. A common approach uses the county assessor's land-to-improvement ratio.
Two nuances change the numbers. The IRS mid-month convention prorates your first and final years based on the month the property is placed in service, which is why the first-year deduction is smaller than a full year. And investors who want to accelerate deductions use a cost segregation study to reclassify components like flooring, appliances, and landscaping into 5-, 7-, and 15-year schedules, front-loading depreciation. Remember that all depreciation you claim is subject to recapture tax when you eventually sell, unless you defer it through a 1031 exchange.
Frequently Asked Questions
What can and cannot be depreciated on a rental property?
You can depreciate the building and certain improvements, appliances, and fixtures. You cannot depreciate land, because it does not wear out. That is why the purchase price must be split between land and building — only the building portion (the depreciable basis) generates your annual depreciation deduction.
What is a cost segregation study?
A cost segregation study is an engineering-based analysis that reclassifies parts of a property — such as flooring, cabinetry, appliances, and land improvements — into shorter 5-, 7-, and 15-year depreciation schedules instead of 27.5 or 39 years. This front-loads deductions into the early years of ownership, boosting near-term cash flow, though it increases eventual recapture.
What is depreciation recapture?
When you sell, the IRS recaptures the depreciation you deducted over the years and taxes it at a rate up to 25%, separate from capital gains tax. So depreciation defers tax rather than eliminating it. Investors commonly use a 1031 exchange to roll gains into a new property and defer both recapture and capital gains.