Rental property depreciation: the 27.5-year math, worked out

Depreciation is the strangest line on a landlord's tax return: a deduction you take every year without spending a dollar. The roof ages, the furnace ages, the IRS lets you expense that aging on a fixed schedule, and on a small rental it's routinely the largest deduction on the form. It's also the one most spreadsheet landlords get wrong, late, or not at all.

The whole calculation comes down to three numbers: what the building (not the land) cost you, 27.5 years, and the month you placed it in service. Here is each one, worked out on a real purchase.

Start with basis, and carve out the land

Your starting point is cost basis: what you paid for the property, plus most of the closing costs that came with buying it , title work, recording fees, transfer taxes, legal fees. (Loan costs like points and appraisals follow different rules; that's a line for your CPA, not a reason to stall.) Then comes the step people skip: subtracting the land.

Building basis = purchase price + most closing costs − the value of the land.

Land doesn't wear out, so it never depreciates. You need a defensible split between building and land, and the most common source is your county assessor's valuation, which already breaks the parcel into land and improvements. Take the ratio from the assessment, apply it to your purchase price, and keep the assessment page in your records. An appraisal that itemizes land works too. What doesn't work is guessing, the split is the first thing questioned if the deduction ever gets looked at.

The 27.5-year schedule, in actual dollars

Residential rental buildings depreciate straight-line over 27.5 years. Not 27, not 30, 27.5, a number with no intuition behind it other than that Congress wrote it down in 1986. Divide the building basis by 27.5 and that's your deduction, every year, for nearly three decades.

Worked example. Say you buy a duplex for $340,000 and the assessor's split puts the land at $90,000. Building basis: $250,000. Annual depreciation: $250,000 ÷ 27.5 , roughly $9,090 a year. If you're in the 24% bracket, that line is worth about $2,180 in tax every single year, against rent you were collecting anyway. Over a decade it shelters more than $90,000 of rental income. That's why leaving it blank is the most expensive mistake on the form.

The first year is shorter than you think

The first year doesn't give you the full amount, because residential rentals use the mid-month convention: whatever day of the month the property became available to rent, the IRS treats it as the middle of that month. Place the duplex in service in March and you get nine and a half months of 2026 depreciation, 9.5 ÷ 12 of the annual figure, about $7,200 instead of $9,090.

Note the phrase placed in service. The clock starts when the unit is ready and available to rent, listed, habitable, keys cut, not when a tenant signs. If it sat listed and vacant through March while you found the right tenant for May, March is your in-service month. Write that date down somewhere it can't drift; it controls the first-year math and it's the date you'll be asked for, years from now, when you sell. If you want to sanity-check your own numbers, the depreciation calculator runs this exact convention.

Improvements join the schedule; repairs don't

The building isn't the only thing that depreciates. A new roof, a remodeled kitchen, a replacement HVAC system , improvements that extend the property's life or add value , each start their own 27.5-year schedule from their own in-service date. Meanwhile a fixed water heater or a patched wall is a repair: deducted in full, this year, no schedule. The distinction has real safe harbors and real gray zones, and it matters enough that it gets its own treatment in the Schedule E walk-through. The record-keeping habit is the same either way: every invoice gets a date, an amount, and a one-line description of what it was.

Where it all lands in April

On the return, the year's depreciation total drops onto Schedule E, line 18, one number summing the building and every improvement schedule you're running. The hard part was never the arithmetic; it's having the schedule's inputs , basis, land split, in-service dates, improvement invoices , still findable in year seven. That's the part that falls apart in a spreadsheet, and it's the part rents.ai was built to hold: it keeps basis and in-service dates per property, flags capital expenses into their own schedules, computes the mid-month math, and keeps line 18 current all year. It doesn't file anything and it doesn't know your full tax picture, what it gives you is a depreciation schedule that foots, attached to the records that prove it.

The IRS's own treatments are Publication 527 (residential rental property) and Publication 946 (how to depreciate property), dry, but they're the primary source every other article is paraphrasing.