How do I calculate depreciation on a rental property?

Residential rental property is depreciated over 27.5 years using the straight-line method. Formula: (Purchase Price - Land Value) ÷ 27.5 = Annual Depreciation. Example: $200,000 property with $40,000 land value: ($200,000 - $40,000) ÷ 27.5 = $5,818 annual depreciation deduction. This reduces taxable income even if the property appreciates.

What is depreciation recapture and how does it affect me?

When you sell a rental property, the IRS 'recaptures' depreciation you claimed at a 25% tax rate. Example: If you claimed $50,000 in depreciation, you'll owe $12,500 in recapture taxes at sale (in addition to capital gains). Strategies to defer: 1031 exchange, installment sale, or dying (stepped-up basis). Recapture applies whether you claimed depreciation or not.

What is cost segregation and is it worth it?

Cost segregation is an engineering study that reclassifies building components into shorter depreciation categories (5, 7, or 15 years vs 27.5). This accelerates deductions to earlier years. Generally worth it for properties over $500,000 or significant renovations. Studies cost $5,000-15,000 but can yield $50,000-200,000 in first-year deductions. Consult a tax professional.

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Rental Property Depreciation: How to Maximize This Powerful Tax Benefit

Leaseway Team

Property Management Experts

January 9, 202614 min read

Calculator and tax forms for rental property depreciation

Article Summary

Master rental property depreciation rules. Learn calculation methods, recapture rules, cost segregation, and strategies to maximize tax savings.

Published: January 9, 2026Updated: January 11, 2026

Depreciation is one of the most powerful tax benefits of rental property ownership. Understanding how to use it properly can save you thousands annually...

Sources & References

IRS Publication 527 - Residential Rental Property
IRS Cost Segregation Audit Techniques Guide
AICPA Real Estate Tax Guide

Frequently Asked Questions

About the Author

Leaseway TeamProperty Management Experts

The Leaseway Team brings together decades of combined experience in Indianapolis property management, real estate investing, and landlord-tenant relations. Our experts are dedicated to helping property owners maximize their investments.

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Back to All Articles

1.What is Rental Property Depreciation?
2.How to Calculate Depreciation
3.Determining Your Cost Basis
4.Cost Segregation Studies
5.Depreciation Recapture Rules
6.Strategies to Maximize Benefits
7.Common Depreciation Mistakes

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Rental Property Depreciation: How to Maximize This Powerful Tax Benefit

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Frequently Asked Questions

How do I calculate depreciation on a rental property?

What is depreciation recapture and how does it affect me?

About the Author

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