Free Real Estate Depreciation Calculator

Residential rental property depreciates over 27.5 years. Divide your cost basis (purchase price plus improvements minus land value) by 27.5 to get annual depreciation. On a $250K property with $50K land value, annual depreciation is $200K ÷ 27.5 = $7,273/year.

You can deduct the annual depreciation amount against rental income, reducing your taxable income. On a property with $7,273 in annual depreciation at a 32% tax rate, you save $2,327 in federal taxes annually — essentially a government subsidy for owning rental property.

Cost segregation is an IRS-approved strategy that reclassifies components of a building (appliances, flooring, landscaping, parking lots) from 27.5-year depreciation to 5, 7, or 15-year schedules. This accelerates depreciation deductions into the first few years, creating massive upfront tax savings.

When you sell a rental property, the IRS recaptures depreciation deductions at a 25% federal tax rate (unrecaptured Section 1250 gain). If you took $50,000 in depreciation over your hold period, you owe approximately $12,500 in recapture tax at sale — regardless of your actual profit.

Depreciation reduces your tax basis, which means more capital gains tax when you sell. It doesn't reduce your actual equity but it creates a future tax liability. Many investors use 1031 exchanges to defer both depreciation recapture and capital gains indefinitely.

Yes — always. You are required to reduce your basis by allowable depreciation whether you take it or not (depreciation recapture applies either way). Failing to claim depreciation gives up the tax savings while still creating the future tax liability. Always take your full depreciation deduction.