1. What is Real Property Depreciation?

Real property depreciation is a tax deduction that allows property owners to recover the cost of income-producing property over time. For residential rental properties, the IRS specifies a depreciation period of 27.5 years.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• Property Cost — Original purchase price plus improvements (minus land value)
• 27.5 years — Standard depreciation period for residential rental property

Explanation: This method spreads the cost evenly over the useful life of the property as defined by the IRS.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for tax reporting, reducing taxable income from rental properties, and proper financial planning for property investments.

4. Using the Calculator

Tips: Enter the property cost in dollars (excluding land value) and the depreciation period (typically 27.5 years for residential property). All values must be valid (cost > 0, years > 0).

5. Frequently Asked Questions (FAQ)

Q1: Why 27.5 years for residential property?
A: This is the standard recovery period established by the IRS for residential rental properties under the Modified Accelerated Cost Recovery System (MACRS).

Q2: What about commercial properties?
A: Commercial properties use a 39-year depreciation period instead of 27.5 years.

Q3: Can I depreciate the land value?
A: No, land is not depreciable. Only the building and improvements can be depreciated.

Q4: When does depreciation begin?
A: Depreciation begins when the property is placed in service or available to rent, not necessarily when it's actually rented.

Q5: What happens when I sell the property?
A: You may need to recapture depreciation and pay depreciation recapture tax when you sell the property.