Rental Property Depreciation Calculator

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How the IRS rules work: GDS vs. ADS, and the mid-month convention

Depreciation for rentals in the U.S. generally uses Straight-line MACRS under either the General Depreciation System (GDS) – which is the standard system) or the Alternative Depreciation System (ADS) which is a longer-life alternative used in special cases. Both use the IRS mid-month convention for buildings, which means the first and last year are partial.

GDS vs. ADS (at a glance)

The Mid-Month Convention (why year one is smaller)

Buildings use the IRS mid-month convention. If you place a property in service on any day in June, you’re treated as owning it for ½ month of June plus full months for July to December. The same logic applies in the year you sell or retire the property: you only get ½ of the month in the month of disposition.

• Real-world effect: year one is a partial deduction; the next years are steady; the final year is partial again.

• No extra inputs needed here: our calculator applies mid-month automatically based on your placed-in-service (and sale, if entered) dates.

When do you use ADS?

Most landlords will use GDS. You’ll use ADS (the longer life) if:

• You’re required to — common cases include property used predominantly outside the U.S., certain tax-exempt use property, or when mandated by other elections.

• You elect the real property trade or business (RPToB) treatment under interest-limitation rules; that election generally requires ADS for certain real property.

• Your CPA tells you to for a specific compliance or planning reason. (ADS increases recovery period, lowering the annual deduction.)

Improvements and Components

You can also depreciation some renovations after purchase. These are added as separate assets with their own depreciable lives and placed-in-service dates. Many common components (e.g., appliances, carpet, land improvements) have shorter lives than the building, and may be bonus-eligible under current law. Structural items (e.g., roof, HVAC) typically follow the building’s life and are not bonus-eligible. Our calculator figures all that out for you.

Foreign property & other special cases

• Property located outside the U.S. generally uses ADS lives (30/40 years) even if you’re a U.S. taxpayer.

• Mixed-use and change-of-use scenarios can alter recovery periods and conventions; keep good records and dates.

• Short tax years and certain entity elections can change how much you can claim in the first/last year.

Next up: we’ll cover improvements, component lives, and bonus depreciation with examples you can copy.

Improvements, Components & Bonus Depreciation

After you purchase a rental property, the money you spend on upgrades is usually treated as capital improvements, not repairs. Improvements are added to your asset list and depreciated over their own recovery periods starting on their placed‑in‑service dates. In contrast, true repairs and maintenance are typically deducted in the year paid and are not depreciated.

What Counts as an Improvement vs. a Repair?

• Improvements: add value, prolong useful life, or adapt the property to a new use (e.g., new roof, HVAC replacement, full kitchen remodel, new flooring, new parking pad/fencing, new appliances).

• Repairs: keep the property in ordinary efficient operating condition (e.g., patching drywall, fixing a leak, servicing HVAC, minor touch‑ups).

Common Class Lives (GDS)

Pro Tip: Lives above are common under GDS; your CPA may adjust based on property type and facts.

Bonus depreciation basics^†

Bonus depreciation allows an immediate first‑year deduction for certain qualifying property. Generally, it’s used for items with a recovery period of 20 years or less (e.g., 5‑, 7‑, 15‑year components) and certain qualified improvement property. Buildings/structural components themselves are not bonus‑eligible.

• Bonus only applies to the improvement’s basis, not the building’s basis.

• If an item is not bonus‑eligible, it’s still depreciated over its normal life with the appropriate convention.

• Your election strategy (bonus vs. no bonus) can affect current‑year tax and future recapture—coordinate with your CPA.

Section 179 vs. Bonus (quick contrast)

• Section 179 is a separate expensing election with limits and phase‑outs; property used to furnish lodging is generally not eligible.

• Bonus depreciation can apply to many rental components (5/7/15‑year) without the same business‑income limitations.

• Commercial tenants and non‑lodging businesses may have broader Section 179 options than residential landlords.

Example: Adding an Improvement Mid‑Year

You place the rental in service on 5/1/2025. In September you install new appliances for $4,200 and put them in service on 9/10/2025.

• The appliances are treated as a separate 5‑year asset starting on 9/10/2025.

• If bonus depreciation applies, and you elect it, you may deduct a large portion in year one; otherwise you’ll depreciate them over 5 years with the applicable convention.

• Either way, the building’s depreciation continues on its own schedule.

Bottom line: Track each improvement with its own cost and placed‑in‑service date. Our calculator lets you add components so your schedule reflects both the building and each improvement correctly.

Selling a Rental Property: Depreciation Recapture, Capital Gains & 1031 Exchanges

When you sell or exchange a rental property, part of your gain may be taxed as depreciation recapture (called unrecaptured §1250 gain, taxed at up to 25% federally). Any remaining gain is usually long-term capital gain if you held the property more than a year. State taxes and the 3.8% NIIT may also apply depending on your income and situation.

What is Depreciation Recapture?

Over the years you claim (or could have claimed) depreciation on the building. When you sell, the IRS “recaptures” that benefit first: the portion of gain equal to your accumulated depreciation (the amount allowed or allowable) is taxed as unrecaptured §1250 gain at a maximum federal rate of 25%.

How to Estimate at Sale (quick steps)

1. Compute adjusted basis: (original depreciable basis + capital improvements − accumulated depreciation).
2. Compute amount realized: (contract price − selling costs such as commissions, transfer taxes, title, etc.).
3. Total gain = amount realized − adjusted basis.
4. Recapture portion = the lesser of (a) accumulated depreciation or (b) total gain; taxed up to 25%.
5. Remainder of the gain is generally long-term capital gain if held > 1 year.

Quick Example

You bought a rental for $300,000; land is $60,000, so your initial building basis is $240,000. By the time you sell, you’ve taken $52,364 of depreciation. You sell for $400,000 and pay $24,000 in selling costs.

• Amount realized = 400,000 − 24,000 = $376,000
• Adjusted basis = 240,000 − 52,364 = $187,636
• Total gain = 376,000 − 187,636 = $188,364
• Recapture portion = min(52,364, 188,364) = $52,364 (taxed up to 25%)
• Remaining LTCG = 188,364 − 52,364 = $136,000

Note: State rules vary, and high-income taxpayers may owe the NIIT.

1031 Exchanges (like-kind) — Defer, Don’t Erase

A properly structured 1031 exchange can defer both capital gains and depreciation recapture. You must use a qualified intermediary, identify replacement property within 45 days, and close within 180 days. Your gain and recapture are carried into the new property via a basis carryover; tax is deferred until a taxable sale.

Forgot to Depreciate in Prior Years?

The IRS treats depreciation as allowed or allowable, so recapture can still apply even if you didn’t claim it. Many landlords correct this with a change in accounting method (often using Form 3115) to “catch up” missed depreciation; talk with your tax pro.

Records to keep

• Settlement statements (purchase & sale), closing costs, and selling expenses
• Land vs. building allocation used to set your original cost basis
• Depreciation schedules and capital improvements with dates and amounts
• Exchange documents if doing a 1031 (QI agreement, IDs, closing files)

Bottom line: Plan ahead for recapture when modeling a sale, and consider a 1031 exchange if deferral fits your goals. Our calculator exports a CSV schedule you can share with your tax professional.

Foreign Rental Property & Special Cases

Depreciation rules can change in a few situations, especially for rental properties located outside the United States, mixed-use properties, or when your tax year is short or changes midstream. Use these notes to avoid common mistakes.

Property located outside the U.S.

• Residential rentals outside the U.S. generally use ADS with a recovery period of 30 years (instead of 27.5).

• Nonresidential (commercial) property outside the U.S. uses ADS with 40 years.

• The mid-month convention still applies to buildings; first and last years are partial.

Non-U.S. owners with U.S. rental property

If you’re a non-U.S. person with U.S. rental income, you can elect to treat rents as Effectively Connected Income (ECI). That lets you claim depreciation and deduct expenses against that income, with tax at graduated rates. (Without the election, 30% withholding on gross rents may apply.) Talk to a qualified advisor about filings and elections. See my guide: U.S. Taxes on Real Estate Income for Non-Residents

Mixed-use properties (personal + rental)

• Allocate basis between the rental and personal portions based on a reasonable method (e.g., square footage or rooms).

• Only the rental portion’s building basis is depreciable.

• Track days of personal use carefully—this can affect deductibility of expenses.

Short tax years & entity changes

• A short tax year (e.g., new entity, liquidation, or accounting period change) alters first/last-year amounts. Buildings still follow the mid-month convention, but the months in the year are fewer.

• If you change the reporting entity (e.g., contribute property to an LLC taxed as a partnership), keep schedules and placed-in-service dates intact—basis and accumulated depreciation must carry correctly.

Change of use & conversions

• Converting a former primary home to a rental? The depreciable basis is generally the lower of (a) adjusted basis or (b) fair market value on the date placed in service.

• Switching from rental to personal use pauses depreciation going forward; keep year-by-year records for potential future sale/recapture.

Casualties, improvements & partial disposals

• Major replacements (roof, HVAC) are generally capital improvements with their own lives (or part of the building if structural).

• If a component is retired or abandoned, you may have a partial disposition—coordinate with your CPA to remove the old component from basis and accumulated depreciation.

• Casualty losses follow separate rules; document repair vs. replacement and dates placed in service for any new assets.

Passive loss & at-risk reminders

• Depreciation reduces rental income, but overall losses can be limited by the passive activity and at-risk rules.

• Disallowed losses are typically suspended and may be used later (e.g., when you have passive income or dispose of the activity).

Bottom line: Know when ADS applies, allocate mixed-use basis carefully, and keep tight records of
dates and costs for improvements and dispositions. These details drive accurate schedules and correct taxes at sale.

Worked Examples you can Copy

Here are simple examples that mirror the calculator above. Numbers are rounded for readability.

Example 1 — Residential Rental Property (27.5 years)

Purchase price $300,000; land allocation $60,000 ⇒ depreciable building basis $240,000. Placed in service on 6/15/2025.

• Annual straight‑line amount = $240,000 ÷ 27.5 ≈ $8,727.
• Year‑1 (mid‑month for June → ~6.5 months) ≈ $4,727.
• Years 2–27 full years ≈ $8,727 per year, with a small partial in the final year.

Example 2 — Adding an Improvement Mid‑Year

Same property as above. On 9/10/2025 you install new appliances for $4,200.

• Appliances are a separate 5‑year asset starting when placed in service.

• If you claim bonus depreciation and the item qualifies, you can deduct up to 100% of the $4,200 in 2025 (see the footnote in Section 4 for the 2025 rule update).

• If you don’t take bonus or it doesn’t qualify, you’ll depreciate the $4,200 over its normal life using the applicable convention. Your building’s depreciation continues unchanged.

Example 3 — Commercial Property (39 Years)

Purchase price $1,300,000; land allocation $300,000 ⇒ depreciable building basis $1,000,000. Placed in service on 2/1/2025.

• Annual straight‑line amount = $1,000,000 ÷ 39 ≈ $25,641.
• Year‑1 (mid‑month for February → ~11.5 months) ≈ $24,573.

Example Tips

• Use the calculator’s CSV export to save a schedule for your records or your CPA.

• Track each improvement with its own cost and placed‑in‑service date; add them as separate items above.

• When you sell, keep your accumulated depreciation handy for recapture calculations (see the sale/recapture section).

FAQs — Rental Property Depreciation

Is depreciation on a rental property tax‑deductible?

Yes. Depreciation on the building and qualifying improvements is generally a deductible expense that reduces your taxable rental income each year. Land is not depreciable.

How do I figure out the land value so I can calculate depreciation?

Use your property tax bill’s split: Land ÷ (Land + Improvements) = land %. Apply that % to your purchase price to estimate the land value. The building basis is purchase price minus land value.

What life and method do I use?

Most residential rentals use 27.5 years straight‑line under GDS; most commercial buildings use 39 years. Buildings follow the mid‑month convention, so the first and last year are partial.

When does depreciation start?

It starts when the property is placed in service—the date it’s ready and available to rent. You don’t need an actual tenant on that date.

How does the first year work if I start mid‑year?

With the mid‑month convention, you get a half‑month in your start month and full months thereafter. The calculator handles this automatically from your placed‑in‑service date.

When do I have to use ADS instead of GDS?

Common ADS triggers include property outside the U.S., certain elections (e.g., real property trade or business under interest‑limitation rules), and specific compliance situations. ADS uses 30 years for residential and 40 years for nonresidential property.

Do improvements get depreciated separately?

Yes. Significant upgrades (appliances, carpet, fencing, roof, etc.) are added as separate assets with their own lives and placed‑in‑service dates. Many 5/7/15‑year items may be bonus‑eligible under current law.

What’s the difference between Section 179 and bonus depreciation?

Section 179 is a separate election with limits and phase‑outs; property used to furnish lodging is generally not eligible. Bonus depreciation can apply to many rental components (5/7/15‑year) without the same business‑income limits. Buildings/structural components are not bonus‑eligible.

I’m a non‑U.S. person with U.S. rental income—can I deduct depreciation?

Often yes, if you elect to treat your rental income as Effectively Connected Income (ECI). That lets you claim depreciation and expenses against that income and be taxed at graduated rates. Talk to a qualified advisor about filings and elections.

What is depreciation recapture when I sell?

On sale, the portion of your gain up to your accumulated depreciation (allowed or allowable) is generally taxed as unrecaptured §1250 gain at a maximum federal rate of 25%. Any remaining gain is usually long‑term capital gain if held > 1 year.

Can a 1031 exchange avoid depreciation recapture?

A properly structured 1031 exchange can defer both capital gains and depreciation recapture into the replacement property through a basis carryover. It doesn’t erase tax; it postpones it.

I forgot to claim depreciation—am I stuck?

The IRS treats depreciation as allowed or allowable, so recapture can still apply even if you didn’t claim it. Many landlords catch up using a change in accounting method (often Form 3115)—ask your tax pro.

Can I depreciate part of a mixed‑use home?

Yes. Allocate basis between the rental and personal portions using a reasonable method (e.g., square footage). Only the rental portion’s building basis is depreciated.

Where do I report depreciation on my return?

Landlords typically track assets on Form 4562 and report income/expense on Schedule E. Your software or CPA will generate the right forms based on your entries.

Are routine repairs depreciated?

No. Routine repairs and maintenance are usually deducted in the year paid; they are not capitalized or depreciated. Improvements are capitalized and depreciated.

Is bonus depreciation 100% right now?

Current law provides 100% bonus depreciation for many qualified 20‑years‑or‑less components placed in service on or after 1/20/2025, with a 40% rate generally applying to items placed in service between 1/1/2025–1/19/2025. Buildings/structural components are not bonus‑eligible. See the footnote in Section 4 for details.

Checklists & Tables (quick reference)

What goes into basis (include) vs. what not to include

When you Might Need ADS (longer life)

• Property located outside the U.S.
• Real property trade or business (RPToB) election under interest‑limitation rules
• Certain tax‑exempt use or compliance situations per your CPA

Records to Keep

• Closing statements (purchase & sale) and allocation of land vs. building
• Invoices for capital improvements with placed‑in‑service dates
• Year‑by‑year depreciation schedules and accumulated depreciation
• Lease history, days available, and any personal‑use days (for mixed‑use)
• 1031 exchange documents (if applicable)

Disposition (sale/1031) Checklist

• Calculate adjusted basis (original basis + improvements − accumulated depreciation)
• Compute amount realized (contract price − selling costs)
• Separate recapture (up to 25%) and remaining long‑term capital gain
• If doing a 1031 exchange, engage a qualified intermediary, identify within 45 days, close within 180 days

Where things typically show up on the tax return

Class‑Life Cheat Sheet (condensed)

Tip: When in doubt, add improvements as separate line items in the calculator so your schedule stays accurate—and export the CSV for your records.