How does the Real Estate Depreciation work?

Annual depreciation = (Purchase price − land value) / 27.5 years Then: Land cannot be depreciated — only the building (typically 70–80% of purchase price) Then: Depreciation is a "paper" deduction — it reduces taxable income without a cash outflow Then: When you sell, depreciation is "recaptured" and taxed at up to 25%.

Can you give an example of how to use the Real Estate Depreciation?

Example: Input $400,000 rental, $80,000 land value, 27.5 years gives a result of $11,636/year depreciation deduction (($400k−$80k)/27.5).

Is the Real Estate Depreciation free to use?

Yes — completely free with no registration, download, or subscription required. All calculations happen instantly in your browser.

How accurate is the Real Estate Depreciation?

Our Real Estate Depreciation uses verified mathematical formulas and is accurate to multiple decimal places. Results are calculated in real-time using the same methods used by professionals.

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Real Estate Depreciation

Straight-Line Depreciation

Asset Cost

Salvage Value

Useful Life

yrs

Real estate depreciation allows investors to deduct the cost of a rental property over its useful life (27.5 years for residential, 39 years for commercial in the US), reducing taxable rental income even if the property is appreciating in value.

Event	Tax Treatment	Rate (2024)
Annual depreciation deduction	Reduces ordinary income	Up to 37%
Property sale — depreciation recapture	Taxed as ordinary income	Up to 25%
Property sale — capital gain beyond	Long-term capital gains	0%, 15%, or 20%
1031 exchange	Defer all taxes	Must reinvest in like-kind property

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Pro Tip

Keep meticulous records of capital improvements (new roof, HVAC, etc.) — they can be depreciated separately or expensed immediately under Section 179 or bonus depreciation, providing larger upfront deductions.

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Did You Know?

Real estate depreciation is one of the few tax benefits available to high earners. Under certain conditions, "real estate professional" status allows unlimited depreciation deductions against any income — a strategy used extensively by wealthy investors.

References

›MACRS depreciation — Wikipedia

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Real Estate Depreciation

Straight-Line Depreciation

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Depreciation Recapture Overview

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Straight-Line Depreciation