How do I separate land value from building value?

Use your property tax assessment (which typically breaks out land vs improvement values), get an appraisal, or use the ratio from comparable sales. You can only depreciate the building, not the land.

What happens to depreciation when I sell?

You'll owe depreciation recapture tax (up to 25%) on all the depreciation you claimed. However, if you do a 1031 exchange instead of selling, you defer the recapture along with the capital gain.

Can I depreciate a property I also use personally?

Only the rental-use portion. If you rent a property 9 months and use it personally 3 months, you depreciate 75% of the building value. The personal use days are subject to vacation home rules.

What if my rental shows a paper loss due to depreciation?

If your AGI is under $100K, you can deduct up to $25,000 in passive rental losses against other income. This phases out between $100K-$150K AGI. Above $150K, losses carry forward unless you qualify as a Real Estate Professional.

Does depreciation actually save money or just defer taxes?

Both. The annual deduction provides real tax savings now. When you sell, you pay recapture at 25% - but if your current bracket is higher, you net out ahead. With a 1031 exchange or step-up at death, the deferred tax may never be paid.

Real Estate

Rental Property Depreciation

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intermediate · $100K - $250K

The IRS allows you to depreciate residential rental property over 27.5 years (3.636%/year).

A $500K building = $18,181 annual deduction even if the property gains value.

Creates "paper losses" to offset rental income.

Annual Limit

3.636% of building value per year

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Tax Benefit

Deduct 3.6% of building value annually as depreciation

Requirements

Own rental property placed in service
Separate land value from building value
Track depreciation for cost basis calculations

How to Implement

1Determine building value (exclude land)
2Divide by 27.5 years for annual depreciation
3Deduct depreciation on Schedule E
4Track cumulative depreciation for future sale

Frequently Asked Questions

Annual Limit

3.636% of building value per year

Educational Only: This information is for educational purposes. Consult a qualified financial advisor or tax professional before implementing.

Last reviewed: April 2026

Related real estate strategies

1031 ExchangeSell investment property, defer all capital gains by buying replacement property.Cost Segregation StudyAccelerate depreciation on commercial property - deduct 20-40% in year one.Real Estate Professional StatusQualify as RE professional to deduct rental losses against W-2 income.

Sources

Internal Revenue Service, Rev. Proc. 2025-32
2026 inflation-adjusted amounts (tax brackets, standard deduction, estate & gift, FSA, credits)
Internal Revenue Service, Notice 2025-67
2026 retirement plan limits (401(k), IRA, SIMPLE, catch-up)
Internal Revenue Service, Rev. Proc. 2025-19
2026 HSA and HDHP inflation-adjusted limits

Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.

Rental Property Depreciation

Interactive Calculator

Tax Benefit

Requirements

How to Implement

Frequently Asked Questions

How do I separate land value from building value?

What happens to depreciation when I sell?

Can I depreciate a property I also use personally?

What if my rental shows a paper loss due to depreciation?

Does depreciation actually save money or just defer taxes?

Annual Limit

Related real estate strategies

Sources