How the calculation works
Residential rental buildings are depreciated over 27.5 years with the straight-line method and the mid-month convention, set by Internal Revenue Code section 168. The calculator follows three steps:
- Basis. Price plus closing costs that IRS Publication 527 lets you add to basis (title insurance, recording and legal fees, for example), but not amounts put in escrow for future taxes and insurance.
- Subtract land. Land is never depreciable. If your contract doesn't split the price, Pub 527 lets you allocate it using the land and building assessed values on your property tax assessment.
- Spread the rest over 27.5 years. A full year is basis ÷ 27.5. In the first year you get (12 − month + 0.5) ÷ 12 of that, because the property counts as placed in service mid-month. The leftover lands in year 28 or 29.
The result matches IRS Publication 946 Table A-6 for every month. The tool shows that check under the results.
| Month | Year 1 | Month | Year 1 |
|---|---|---|---|
| January | 3.485% | July | 1.667% |
| February | 3.182% | August | 1.364% |
| March | 2.879% | September | 1.061% |
| April | 2.576% | October | 0.758% |
| May | 2.273% | November | 0.455% |
| June | 1.970% | December | 0.152% |
Years 2 through 27 are about 3.636% each (the table alternates 3.636% and 3.637% to absorb rounding).
Worked example
You buy a house for $450,000 and pay $9,000 in closing costs that go into basis. The assessor values the land at 25% of the total. You finish repairs and list it for rent in July 2026.
- Cost: $450,000 + $9,000 = $459,000
- Land: 25% × $459,000 = $114,750
- Depreciable basis: $344,250
- Full-year depreciation: $344,250 ÷ 27.5 = $12,518
- 2026 (July, 5.5 months): $12,518 × 5.5 ÷ 12 = $5,738
At a 24% marginal rate, a full year of depreciation saves about $3,004 in tax, roughly $250 a month. In May 2028 you replace the roof for $18,000. That starts its own 27.5-year schedule: $409 in 2028, then $655 a year.
Rules that trip people up
- Start date: depreciation begins when the unit is ready and available for rent, not when you close or when the first tenant moves in.
- Improvements vs repairs: Pub 527 treats additions and improvements as separate property with their own recovery period starting when they're placed in service. Ordinary repairs are generally deducted in the year you pay them.
- The 80% test: a building counts as residential rental property only if at least 80% of its gross rental income comes from dwelling units. A building with large commercial rents may fall under the 39-year nonresidential schedule instead.
Edge cases the tool doesn't cover
- Fiscal-year filers, the 30- or 40-year alternative depreciation system, and partial personal use (rent part of the year, live there part).
- Appliances, carpet and furniture, which have shorter recovery periods than the building.
- The year you sell: the mid-month convention also applies to the month of sale.
What to do next
Carry your cumulative depreciation into the depreciation recapture calculator to see the tax on a sale, or plan a deferral with the 1031 exchange calculator. See how the deduction changes your returns in the rental cash flow calculator, and read rental income taxes for small landlords.