1. What is Rental Property Depreciation?

Rental property depreciation is a tax deduction that allows property owners to recover the costs of income-producing properties over time. The IRS allows you to deduct a portion of the property's value each year as a depreciation expense.

2. How Does the Calculator Work?

The calculator uses the depreciation formula:

Where:

• \( Basis \) — Original cost basis of the property (USD)
• \( Useful\ Life \) — 27.5 years for residential or 39 years for commercial property

Explanation: The formula calculates the annual depreciation expense by dividing the property's basis by its IRS-defined useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for tax purposes, reducing taxable income from rental properties and improving cash flow while complying with IRS regulations.

4. Using the Calculator

Tips: Enter the property's original cost basis in USD and select the appropriate useful life (27.5 years for residential rental property, 39 years for commercial property).

5. Frequently Asked Questions (FAQ)

Q1: What's included in the cost basis?
A: The basis includes purchase price plus closing costs (excluding loan fees) plus capital improvements. Land value is excluded.

Q2: When does depreciation begin?
A: Depreciation begins when the property is placed in service (ready and available for rent), not necessarily when you first rent it.

Q3: What's the difference between 27.5 and 39 years?
A: Residential rental properties use 27.5-year depreciation, while commercial properties use 39-year. Mixed-use properties are depreciated proportionally.

Q4: Can I claim depreciation if my property isn't rented?
A: No, depreciation can only be claimed when the property is actively used for business or income-producing purposes.

Q5: What happens when I sell the property?
A: You'll need to recapture the depreciation deductions and pay depreciation recapture tax (maximum 25%) when you sell.