Rental Property Depreciation Calculator

While calculators like this can be useful for estimating your depreciation, preparing a final tax calculation is still best left up to the professionals. In order to more easily track capital expenses and make their CPA’s job easier, many real estate investors sign up for a free account with Stessa. Capital expenses tracking features include useful life and date placed in service fields for each capital project along with a comprehensive Capital Expenses report.

Stessa also features a rental property Balance Sheet that can automatically update each property’s market value to give real estate investors a more accurate idea of portfolio equity value.

Over 300,000 landlords use Stessa to get access to features like:

• Automated accounting tools
• Manual expense tracking
• One-click smart receipt scanning
• Mileage tracking
• Automated bank feeds
• Centralized dashboard with key metrics and complete chart history
• Rental applications
• Tenant screening
• Landlord banking
• eSigning for documents and leases
• Mobile app (iOS and Android)

Go here to get started for free.

How This Depreciation Calculator Can Help You

This calculator shows you:

• Your yearly tax deduction from depreciation
• Your adjusted first-year deduction
• Total depreciation you’ve claimed to date
• Estimate of actual dollars saved on taxes
• A complete year-by-year depreciation schedule you can download

This tool eliminates the need for complicated spreadsheets or formulas. Whether you’re filing taxes or evaluating a potential property purchase, you’ll see exactly how much this tax benefit puts back in your pocket.

You can also test different scenarios—like how adding a new kitchen might affect your taxes. Share these calculations with your tax professional to make more informed decisions about your real estate investments.

Note: IRS rules regarding depreciation, particularly bonus depreciation, can change. We recommend verifying current IRS guidelines when filing your taxes.

How The Calculator Works

Rental property depreciation lets you deduct the cost of your building (not the land) from your taxes over time. The IRS uses the straight-line method for this calculation. Here’s how it works:

The basic formula:

Annual Depreciation = (Cost Basis − Bonus Depreciation) ÷ Useful Life

This breaks down into:

• Cost Basis = Purchase Price + Closing Costs + Capital Improvements − Land Value
• Bonus Depreciation = Value of certain assets (like appliances) you choose to deduct immediately
• Useful Life = How long the IRS says your property lasts:
  • 27.5 years for residential properties
  • 39 years for commercial properties

For your first year, depreciation is prorated based on when you started renting the property. Let’s say you began renting in May—the IRS would only let you claim about 7.5 months of depreciation that year, not the full 12 months.

Our calculator shows your total depreciation claimed so far and calculates your potential tax savings based on your tax bracket. This helps you see exactly how much money depreciation may put back into your pocket each year.

Understanding Each Field

Property Type: Choose “Residential” or “Commercial.” This sets the correct depreciation schedule — 27.5 years for residential and 39 years for commercial properties.

Purchase Price ($): The total amount you paid to buy the property.

Closing Costs ($): Enter any capitalized costs associated with the purchase, such as title insurance, legal fees, recording charges, and loan-related costs. These are added to your purchase price.

Land Value ($): Land does not depreciate. The value of the land must be subtracted from the total purchase amount and closing costs.

Capital Improvements ($): These are major upgrades that add value to your property. If you spent $15,000 on a new roof—that’s a capital improvement you can depreciate. Regular repairs like fixing a leaky faucet don’t count.

Bonus Depreciation ($): This lets you deduct certain items faster than the regular schedule. Let’s say you buy a rental with $10,000 worth of appliances—you might be able to deduct that full $10,000 immediately instead of spreading it over 27.5 years. Enter that amount here.

Service Start Date: This is when you first made your property available for rent. Your depreciation begins on this date.

Marginal Tax Rate (%): This is your top federal income tax rate. The calculator uses this percentage to show you how much actual money you might save on taxes.

Frequently Asked Questions About Depreciation

Do you have to recapture depreciation when you sell?

Yes. When you sell your rental property, the IRS requires you to “recapture” all depreciation you’ve claimed. This means you’ll likely pay taxes on that amount at a 25% rate.

Let’s say you’ve deducted $50,000 in depreciation over the years—you might owe $12,500 in taxes when you sell. However, strategies like a 1031 exchange can help you defer these taxes if you’re buying another investment property.

Can you include land in your depreciation calculation?

No. Land doesn’t wear out, so the IRS doesn’t allow you to depreciate it. You must subtract the land value from your purchase price before calculating depreciation. Only the building and certain improvements qualify for this tax benefit.

What counts as a capital improvement?

Capital improvements are major upgrades that add substantial value or extend your property’s life.

Let’s say you replace an outdated electrical system for $8,000—that’s a capital improvement you can depreciate. Other examples include a new roof, kitchen renovation, or adding a deck. Regular maintenance like painting or minor repairs don’t qualify, even if they’re expensive.

What if you forgot to claim depreciation in previous years?

Even if you didn’t claim depreciation on your rental property in past years, the IRS still assumes you did. This means you’ll face the same recapture taxes when selling, whether you actually took the deduction or not.

The good news? You don’t need to file amended returns for every missed year. Instead, you can file Form 3115 (Application for Change in Accounting Method) to catch up on all your missed depreciation deductions in the current tax year.