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Default 80/20 is conservative. An appraisal allocating more to the building (lots in low-land-value areas) increases depreciation.
Annual depreciation
$320,000 ÷ 27.5 yrs
$11,636
Monthly depreciation
The non-cash deduction reducing your taxable rental income each month
$970
Estimated property tax (annual)
Add zip code above for state-level estimate
$4,400
10-year accumulated depreciation
Total deductions you'd take over a 10-year hold
$116,364
Depreciation recapture if sold at 10 yrs
At 25% recapture rate. Separate from capital gains on appreciation. 1031 exchange defers.
$29,091
Walkthrough
How the math works
building_basis = purchase_price × 0.80
// Land doesn't depreciate. 80/20 is the IRS default split.
annual_depreciation = building_basis ÷ 27.5
// Residential life is 27.5 years, straight-line.
For a $400,000 residential rental: $400,000 × 0.80 = $320,000 building basis. $320,000 ÷ 27.5 = $11,636/year in depreciation. That comes off rental income on Schedule E every year, often turning what looks like a positive cash-flowing rental into a tax loss on paper.
Cost segregation studies can accelerate depreciation by reclassifying parts of the property to 5/7/15-year lives — $30k–$80k of accelerated depreciation in year 1 is common for properties above $500k. Cost: $3,000–$8,000 for the study. Best paired with REPS or the STR loophole so the resulting loss is non-passive.
Questions
Frequently asked questions
How is residential rental property depreciated?▾
The IRS uses straight-line depreciation over 27.5 years for residential rental property. The land portion is NOT depreciable — typically you allocate 80% of the purchase price to the building and 20% to the land (this default is conservative; an appraisal can sometimes justify higher building basis). Annual depreciation = (purchase price × 0.80) ÷ 27.5. The first and last year are partial based on month placed in service.
What's depreciation recapture and when does it kick in?▾
When you sell a rental property, the IRS recaptures all depreciation you took (or could have taken) at a special 25% rate, even if your overall capital gain is taxed lower. So a $200k purchase price residential rental held for 10 years generates ~$58k of accumulated depreciation, which produces ~$14.5k in recapture tax at sale — separate from the long-term capital gains tax on appreciation. 1031 exchanges and qualified opportunity zones can defer this.
Can I depreciate faster with cost segregation?▾
Yes. A cost segregation study reclassifies portions of a property's basis (appliances, flooring, parking lots, landscaping, certain electrical/plumbing) to 5/7/15-year lives instead of 27.5. Combined with bonus depreciation, this can accelerate large chunks of depreciation into the early years. Studies cost $3,000–$8,000 and are most cost-effective on properties above $500,000. Be aware: faster depreciation = more recapture at sale.
What if my rental shows a loss after depreciation?▾
Rental losses are passive by default. They can offset other passive income (e.g. another rental's profit) without limit. To offset W-2 or business income, you need either: (1) the $25,000 special allowance for active participation, which fully phases out between $100k and $150k AGI, OR (2) Real Estate Professional Status (REPS) — 750+ hours/year in real estate AND >50% of total work hours, AND material participation in each rental. Without those, losses suspend until you have passive income or sell.
How is property tax calculated by zip code?▾
Property tax is set at the county and city level, not the federal or state level — but state averages give a usable estimate. The calculator uses Tax Foundation effective rates by state (e.g. NJ ~2.49%, IL ~2.27%, CA ~0.75%, HI ~0.28%) and applies them to your purchase price. Real rates within a state can vary 2-3× by county. For an accurate number, check your county assessor's website or the most recent tax bill.
Is Airbnb / short-term rental treated differently?▾
Sometimes. If your average guest stay is 7 days or less (or 30 days with substantial services like daily cleaning), the property is treated as a short-term rental rather than passive Schedule E rental. Losses become non-passive (offsetting W-2/business income) WITHOUT needing REPS — this is the famous 'STR loophole.' If you provide hotel-level services (daily housekeeping, meals), it gets reclassified to Schedule C and is subject to self-employment tax. Depreciation rules are the same 27.5 years either way.
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