Finance category
Mortgage, loan, investing, tax, and money calculators.
Real Estate Depreciation Calculator
Estimate annual depreciation on a rental or commercial property. Split purchase price into land (non-depreciable) and building, fold in capitalized closing costs and improvements, and see the tax shield, multi-year totals, and recapture exposure if you sell.
Property and basis
Land is not depreciable. 15%–25% is a common ratio; use county assessor values as support.
Title, legal, transfer tax, etc. that become part of basis.
Roof, HVAC, windows — depreciated with the property.
Uses the IRS mid-month convention for residential and commercial rentals.
Annual depreciation
$13,182
straight-line over 27.5 years
First year (mid-month)
$12,633
$1,098/mo after first year
Annual tax shield
$3,164
at 24% marginal rate
Depreciable basis
$362,500
building + closing + improvements
Depreciation over the hold
Depreciation is a paper expense — it reduces taxable income without reducing cash flow. Keep in mind the IRS recaptures depreciation at up to 25% when you sell unless you 1031 into another property.
Total after 5 years
$65,360
Total after 10 years
$131,269
Recapture if sold after 5 years
$16,340
at 25% max recapture rate
Recapture if sold after 10 years
$32,817
at 25% max recapture rate
Land value (non-depreciable)
$85,000
Building value
$340,000
This calculator uses straight-line depreciation with the IRS mid-month convention for residential (27.5 years) and commercial (39 years) real estate. Cost segregation studies can accelerate depreciation on 5-, 7-, and 15-year components — those aren't modeled here. Consult a tax professional.
How to Use
- Enter the purchase price and an allocation for land — land is not depreciable. The county assessor's ratio is a defensible starting point.
- Select the property type: residential rental depreciates over 27.5 years and commercial property over 39 years under straight-line MACRS.
- Add capitalized closing costs (title, legal, transfer tax) and any capital improvements made at purchase — those increase basis.
- Set months in service for the first year so the calculator applies the IRS mid-month convention.
- Enter your marginal tax bracket to translate annual depreciation into the after-tax dollar impact.
Frequently Asked Questions
How does rental property depreciation work?
The IRS lets you deduct the depreciable basis (building plus capitalized costs and improvements) evenly over 27.5 years for residential rental or 39 years for commercial property. Land is not depreciable. Depreciation is a paper expense — it reduces taxable income without reducing cash flow.
What is the mid-month convention?
The IRS treats real estate as placed in service in the middle of the month regardless of the actual placed-in-service date. That's why the first year's deduction is smaller — it's a fraction of a full year's depreciation based on months in service minus half a month.
Can I deduct more in the first year through cost segregation?
A cost segregation study reclassifies components of the building — appliances, flooring, fixtures, landscaping — into 5-, 7-, and 15-year property that can be depreciated faster, often with bonus depreciation. For larger deals the accelerated deduction can be substantial but requires a qualified engineer's study.
What is depreciation recapture?
When you sell the property, the IRS recaptures the depreciation you claimed at up to a 25% tax rate (the "unrecaptured Section 1250 gain" rate). Recapture applies even if you didn't actually claim depreciation — the IRS assumes you did. A 1031 exchange can defer both the recapture and capital gains.
How do I allocate land vs building?
The safest default is the county assessor's allocation ratio from your property tax bill. An appraisal or a cost segregation study can support a lower land allocation for higher depreciation. Avoid very aggressive allocations — an IRS audit can reassign the split.
Related Calculators
Rental Property Calculator
Drop the annual depreciation into a full rental underwrite to see after-tax cash flow.
1031 Exchange Calculator
Model how 1031 can defer the depreciation recapture the IRS would otherwise collect at sale.
Cap Rate Calculator
Depreciation doesn't affect cap rate — compare the pre-tax return alongside the tax shield.
Cash-on-Cash Return Calculator
Pair depreciation with cash-on-cash return for the full investor picture.
Tax Bracket Calculator
Find your marginal bracket so you can value the depreciation tax shield accurately.
Rehab Budget Calculator
Capital improvements go into depreciable basis — size them here before rolling into depreciation.
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