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Rental property depreciation: 27.5 years, with a worked example

By Spruce Sheets · Updated November 14, 2026 · 6 min read

Depreciation is the annual tax deduction that lets you recover the cost of a residential rental building — and later improvements — over time. For most US residential rentals placed in service after 1986, that recovery period is 27.5 years, using the straight-line method and the mid-month convention. This guide walks through the calculation with a fully worked example. The land is left out, the first year is shorter than a full year, and the numbers come from the IRS percentage tables.

This is general information to help you understand the calculation, not tax advice. Depreciation rules are detailed, they change, and the right basis, class and convention depend on your facts. Confirm the figures and how to report them with a qualified tax professional. Publications 527, 551 and 946, and Form 4562, are the IRS references behind this guide.

What you can and cannot depreciate

You can generally depreciate property you own, that you use in your rental activity, that has a useful life of more than one year, and that wears out or gets used up. For a typical buy-and-hold rental, that means:

• The building, including structural components.
• Later capital improvements to the building, such as a new roof or an addition, each with its own placed-in-service date. See repairs vs capital improvements.
• Some personal property used in the rental (appliances, for example) may have a shorter recovery period than 27.5 years.

You cannot depreciate land. The lot does not wear out, so that part of what you paid is left in basis until you sell. You also do not depreciate the value of your own labor.

A building counts as residential rental property when at least 80% of the gross rental income for the year is from dwelling units. Nonresidential real property is generally recovered over 39 years.

Step 1: figure the depreciable basis

Start with your cost basis in the property, then take out the land.

1. Cost of the property. This is usually the purchase price plus certain settlement and closing costs that you add to basis (for example, title fees and recording fees). Prepaid interest, amounts you deduct currently, and items charged to the seller are not simply added in. Publication 551 explains what belongs in basis.
2. Allocate between land and building. One common method is to use the tax assessor's split. If the assessor values the land at 20% of the total assessed value, you apply 20% of your basis (not of the assessed value) to land.

Here is a made-up purchase, for illustration only:

Item	Amount
Purchase price	$320,000
Allowable closing costs added to basis	$6,400
Total basis	$326,400
Assessor's land value	$64,000
Assessor's building value	$256,000
Land share of assessed value	20%
Land portion of basis (20% × $326,400)	$65,280
Depreciable building basis	$261,120

The allocation matters. If you had used a 25% land share instead, the land basis would be $81,600 and the building basis $244,800, and the first-year deduction in the example below would be $7,047.79 — $469.85 less. Keep the closing statement, the tax bill and a short note on how you split land and building.

Step 2: the 27.5-year method and the mid-month convention

For residential rental real property, MACRS generally requires:

• The straight-line method (the same fraction of basis each full year).
• A 27.5-year recovery period.
• The mid-month convention: the property is treated as placed in service, or disposed of, in the middle of the month.

"Placed in service" means the building is ready and available for use as a rental, even if a tenant has not moved in yet. A property you finish getting ready on March 2 and one you finish on March 30 both start in mid-March.

A full year is 1 ÷ 27.5, which the IRS tables round to 3.636% of unadjusted basis (some later years use 3.637% so the column totals 100%). The first year is a partial year. Publication 946, Table A-6, and Publication 527, Table 2-2d, list the first-year percentages by month. For a building placed in service in March, the year-1 rate is 2.879%.

A worked first year

The same made-up property is first ready to rent in March. Using Table A-6:

	Amount
Depreciable building basis	$261,120
Year-1 rate (placed in service in March)	2.879%
Year-1 depreciation	$7,517.64
A full later year at 3.636%	$9,494.32

So the first year is smaller than a full year, as it should be: you only had the building in service for 9.5 months, measured from mid-March. You report the deduction on Form 4562 and carry it to Schedule E, line 18.

If you also replace the roof in September of the same year for $16,500, that improvement is a separate 27.5-year asset. The September first-year rate is 1.061%, so year-1 depreciation on the roof is $175.06. A full later year on the roof is $599.94. Added to the building, year-1 depreciation becomes $7,692.71.

What the later years look like

Years 2 through 27 are generally a full 3.636% (with 3.637% in some years so the table totals 100%). The last sliver of basis is recovered in year 28 or 29, because of the mid-month convention at both ends. Use the same IRS table, in the column for the month the property was placed in service, and keep a depreciation schedule so each asset stays on its own line. When you sell, depreciation you took or could have taken generally reduces your basis and can be recaptured as part of the gain, which is one reason to keep the schedule even in a loss year.

Personal property is not always 27.5 years

Appliances, carpeting and some other personal property used in a rental can have a shorter recovery period than the building, and they often use a different convention (commonly the half-year convention). Land improvements such as a fence or a driveway can also have a different class life. This example treats the building and the roof as 27.5-year residential rental real property and does not reclassify anything else. Section 179 and bonus depreciation also generally do not turn the residential rental building itself into a one-year write-off. Ask a tax professional what applies to a specific asset in the year you place it in service.

Common mistakes

• Depreciating the land, or skipping the allocation and using the full purchase price.
• Starting depreciation too early or too late. The clock starts when the property is ready and available to rent, not at contract signing and not necessarily on the day the first tenant pays rent.
• Forgetting later improvements. A roof, an addition or a major remodel is usually its own asset, with its own 27.5-year life, not an expense on line 14.
• Ignoring the mid-month convention and taking a full 3.636% in the first year.
• Losing the records. You will need dates, basis and accumulated depreciation again when you sell.

Doing it in a spreadsheet

A depreciation schedule is a list: asset, date placed in service, depreciable basis, method, recovery period, convention, and the deduction for each year. The yearly total goes to Schedule E, line 18. The Rental Property Bookkeeping Spreadsheet keeps income and expenses by Schedule E category so the other lines of the form are ready to add up next to that depreciation total.

Percentages used here are from the IRS mid-month tables for 27.5-year residential rental property (Publication 946, Table A-6 / Publication 527, Table 2-2d). The example is made up. This guide is not tax advice.

Frequently asked questions

How many years do you depreciate a residential rental property?

Under MACRS, residential rental real property is generally recovered over 27.5 years using the straight-line method and the mid-month convention. Land is not depreciable. You report the deduction on Form 4562 and on Schedule E, line 18.

Do you depreciate the full purchase price?

No. You generally depreciate your basis in the building and in later improvements, not the land. A common starting point is to split the total basis (purchase price plus certain closing costs) in the same proportion as the tax assessor's land and improvement values, then confirm the approach with a tax professional.

Why is the first year of depreciation smaller?

Residential rental property uses the mid-month convention: the building is treated as placed in service in the middle of the month, regardless of the day. A property first ready to rent in March gets 9.5 months of depreciation that year, which is why the IRS percentage tables show a smaller first-year rate.

Keep reading

• Schedule E expense categories for landlords: a plain-English guide
• Repairs vs capital improvements on a rental property, explained
• How to track rental income and expenses in a spreadsheet