Rental Depreciation Calculator Formula

Understand the math behind the rental depreciation calculator. Each variable explained with a worked example.

Use the Rental Depreciation Calculator

Formulas Used

Annual Depreciation Deduction

annual_depr = annual_depreciation

Monthly Depreciation

monthly_depr = monthly_depreciation

Annual Tax Savings

tax_savings_annual = annual_depreciation * marginal_tax_rate / 100

Depreciable Basis

depr_basis = depreciable_basis

Total Depreciation (27.5 years)

total_depreciation = depreciable_basis

Land as % of Purchase

land_pct = land_value / purchase_price * 100

Variables

VariableDescriptionDefault
purchase_priceProperty Purchase Price(USD)350000
land_valueLand Value(USD)70000
closing_costs_capitalizedCapitalized Closing Costs(USD)5000
improvementsCapital Improvements Added(USD)0
marginal_tax_rateMarginal Tax Rate(%)32
depreciable_basisDerived value= purchase_price - land_value + closing_costs_capitalized + improvementscalculated
annual_depreciationDerived value= depreciable_basis / 27.5calculated
monthly_depreciationDerived value= annual_depreciation / 12calculated

How It Works

Rental Property Depreciation

The IRS allows residential rental property owners to deduct the cost of the building over 27.5 years using straight-line depreciation.

Formula

Annual Depreciation = Depreciable Basis / 27.5

Depreciable Basis = Purchase Price - Land Value + Capitalized Costs + Improvements

Key Rules

  • Land is never depreciable
  • Depreciation begins when the property is placed in service (available for rent)
  • The first and last year use a mid-month convention (partial year)
  • Depreciation is mandatory even if not claimed (recaptured at sale)

    • Land Value Allocation

    The IRS requires a reasonable allocation between land and building. Methods include:

  • County tax assessment ratios
  • Appraisal allocation
  • Comparable land sales

    • Worked Example

    Purchased a rental for $350,000 with $70,000 land value, $5,000 capitalized closing costs, no improvements. 32% tax bracket.

    purchase_price = 350000land_value = 70000closing_costs_capitalized = 5000improvements = 0marginal_tax_rate = 32
    1. 01Depreciable basis: $350,000 - $70,000 + $5,000 = $285,000
    2. 02Annual depreciation: $285,000 / 27.5 = $10,364
    3. 03Monthly depreciation: $10,364 / 12 = $863.64
    4. 04Annual tax savings: $10,364 x 32% = $3,316
    5. 05Land as % of purchase: $70,000 / $350,000 = 20.0%
    6. 06Total depreciation over 27.5 years: $285,000

    Ready to run the numbers?

    Open Rental Depreciation Calculator