Rental Property Taxes
Rental Property Depreciation: What Property Owners Should Know
Depreciation can be one of the largest tax deductions associated with owning rental real estate — and one of the easiest areas to carry forward incorrectly from year to year.
The property's depreciable basis, the date it was placed in service, improvements made over time and prior depreciation all become part of the property's continuing tax history.
Depreciation isn't just a deduction for this year's tax return. It can matter for as long as you own the property — and when you eventually sell it.
See Your PriceIndividual tax preparation starts at $650.
What Is Rental Property Depreciation?
Depreciation is the tax mechanism used to recover the cost of qualifying property over its applicable recovery period rather than deducting the entire cost when the property is purchased.
For residential rental real estate placed in service under the current general MACRS rules, the building is generally depreciated over 27.5 years using the applicable convention and method.
The land itself is not depreciable. That makes properly allocating the property's cost between land and depreciable property an important starting point.
You Usually Don't Depreciate the Entire Purchase Price
Suppose you purchase a rental property for $500,000. That does not necessarily mean you have $500,000 of depreciable residential real estate.
Part of the property's value may be attributable to land, which is generally not depreciable. Certain acquisition costs may also affect tax basis.
Determining the appropriate depreciable basis is therefore one of the first steps in establishing the depreciation schedule.
Four Pieces of Information That Matter
Tax Basis
The starting tax basis of the property helps determine the amount available for depreciation after appropriate adjustments and allocations.
Land Allocation
Land is generally excluded from the amount depreciated.
Placed-in-Service Date
Depreciation generally begins when the property is ready and available for its intended rental use, not simply when it was purchased.
Improvements
Capital improvements may create additional depreciable basis with their own placed-in-service dates and recovery periods.
When Does Rental Property Depreciation Begin?
Depreciation generally begins when the property is placed in service — meaning it is ready and available for its intended rental use.
The purchase date and placed-in-service date are not always the same.
For example, you might purchase a property, spend several months renovating it and only later make it available for rent. The facts surrounding when the property became ready and available can therefore matter.
Repairs and Improvements Are Not Necessarily Treated the Same
Some rental-property expenditures may be currently deductible as repairs, while others may need to be capitalized and recovered over time through depreciation.
A major renovation, new roof, substantial building improvement or other capital expenditure may therefore create a new depreciable asset rather than an immediate deduction.
How an expenditure is classified can affect both this year's deduction and the property's tax records for years afterward.
Not Everything at a Rental Property Uses the Same Depreciation Schedule
The residential rental building itself is generally depreciated over 27.5 years, but other assets associated with the rental may have different tax classifications and recovery periods.
Appliances, furniture, certain equipment, landscaping or land improvements, and other assets may need to be separately identified depending on the facts.
This is one reason an accurate fixed-asset and depreciation schedule is valuable when a rental has been owned for several years.
Depreciation Can Create a Tax Loss — But Can You Deduct It?
Depreciation can cause a rental property to report a tax loss even when the property generates positive cash flow.
But calculating the rental loss and determining whether you can currently deduct that loss are two different questions.
Passive activity loss rules can limit the amount currently deductible and cause unused losses to carry forward.
What If You Convert Your Home Into a Rental?
Converting a former personal residence into rental property can require additional basis analysis.
The basis used for depreciation may not simply be the home's original purchase price. Rules involving adjusted basis and fair market value at the time of conversion can become relevant.
Keeping documentation from the time of conversion can be important, particularly if the property is held as a rental for many years.
What If Depreciation Wasn't Claimed Correctly in Prior Years?
Changing tax preparers sometimes reveals that a rental property's depreciation schedule is missing, incomplete or inconsistent with prior returns.
Depending on what occurred and for how long, correcting depreciation may involve more than simply changing the current-year deduction. The appropriate correction can depend on the property's filing history and the nature of the prior treatment.
This is an area where reviewing the prior depreciation schedule before changing the current return can be particularly important.
Depreciation Matters When You Sell the Rental Property
Depreciation generally reduces the property's adjusted tax basis over time. That means years of depreciation can affect the gain calculated when the property is eventually sold.
Federal tax rules can also subject part of the gain associated with depreciation on real property to special treatment as unrecaptured Section 1250 gain.
The depreciation schedule you maintain today can become an important part of calculating the tax consequences years later.
Why Your Prior Depreciation Schedule Matters
A rental property's depreciation schedule is designed to continue from one tax year to the next.
When we prepare a return for a new rental-property client, prior-year tax information helps establish the property's existing tax history, including original basis, accumulated depreciation, improvements and other assets.
Reconstructing that history later can be much harder than carrying forward an accurate schedule each year.
What If Your Rental Is in Another State?
Rental property located outside your resident state can create an additional state income-tax filing requirement.
State depreciation rules do not always follow every federal depreciation provision, which can sometimes create different federal and state tax bases.
CPA Tax Preparation for Rental Property Owners
Depreciation is only one part of preparing a tax return with rental real estate.
Rental income and expenses, passive losses, improvements, property sales, prior-year carryovers and state filing requirements can all affect the return.
How Much Does Tax Preparation Cost With Rental Property?
Rental property generally adds complexity to an individual tax return, but pricing depends on the overall return rather than simply whether Schedule E is present.
Our online questionnaire considers the number of rental properties together with businesses, K-1s, investment activity, states and other tax items.
Individual tax preparation starts at $650.
A Clear Process for Rental Property Tax Preparation
Tell us about your rental properties and the other major components of your individual tax return. You'll see your preparation price and current production availability before deciding whether to move forward.
Know your price. Know when we start. Know when we expect to finish.
When all required information is complete by your production date, we expect to complete your return by the end of the third week following that date, subject to significant unexpected issues.
Rental Property Depreciation FAQs
How long is residential rental property depreciated?
Under the general federal MACRS rules, residential rental buildings are generally depreciated over 27.5 years using the applicable method and convention. Other assets associated with the property can have different recovery periods.
Can I depreciate the land?
Generally, no. Land is not depreciable, so the property's basis generally needs to be allocated between land and depreciable property.
When does depreciation start?
Depreciation generally begins when the property is placed in service — when it is ready and available for its intended rental use.
Are rental property improvements depreciated?
Capital improvements generally become part of the property's depreciable tax records and are recovered under the applicable depreciation rules rather than automatically being deducted as current repairs.
What happens if I forgot to depreciate my rental property?
The appropriate correction depends on what was reported in prior years and how long the depreciation treatment has been incorrect. It should generally be reviewed rather than simply starting a new depreciation schedule without considering the prior filing history.
Does depreciation affect taxes when I sell?
Yes. Depreciation generally reduces adjusted tax basis and can affect the gain recognized when the property is sold. Special federal tax treatment can also apply to gain associated with prior depreciation.
Own Rental Property?
Tell us about your rental properties and the other components of your individual tax return. We'll determine the preparation level that fits your situation.
See your price and current production availability before you decide to move forward.
See Your PriceReviewed by Marc Boulanger, CPA | Updated September 2026