Rental property depreciation, explained with a worked example

Updated 2026-11-08 · Lintel

Depreciation is a deduction for the building wearing out. You get it every year even if the property is gaining value. For many small landlords it is the largest number on Schedule E, and the one most often skipped.

The four inputs

Cost basis. What you paid, plus certain settlement costs (title fees, recording fees, transfer taxes and similar). Points and loan costs are handled separately.
Land value. Land never wears out, so it is never depreciated. Subtract it. Many owners use the land/improvement ratio from the county tax assessment or their appraisal.
Placed-in-service date. The month the property was ready and available for rent. That is not the closing date if you renovated first.
Recovery period. 27.5 years for residential rental buildings, 39 years for nonresidential (commercial) buildings, using straight-line depreciation and the mid-month convention.

The mid-month convention in one sentence

Whatever day in the month you placed the property in service, the IRS treats it as the middle of that month. So the first year gets the remaining whole months plus a half.

Placed in service	First-year % of basis (27.5-yr)	Placed in service	First-year % of basis
January	3.485%	July	1.667%
February	3.182%	August	1.364%
March	2.879%	September	1.061%
April	2.576%	October	0.758%
May	2.273%	November	0.455%
June	1.970%	December	0.152%

Every full year after that is 3.636% (1 ÷ 27.5). The final year picks up whatever is left, so the schedule usually runs 29 calendar years.

Worked example

Dana buys a duplex for $238,000 and adds $4,200 of closing costs to basis. The county assessment puts the land at $48,000. Dana places it in service on August 1, 2019.

Depreciable basis: $238,000 + $4,200 − $48,000 = $194,200
Full-year deduction: $194,200 ÷ 27.5 = $7,061.82
2019 (August → 4.5 months): $7,061.82 × 4.5 ÷ 12 = $2,648.18
2020–2045: $7,061.82 per year
By the end of 2025 Dana has taken $45,019.09, so 2026 is another $7,061.82

In October 2024 Dana also replaced the HVAC for unit B for $6,200. That improvement gets its own 27.5-year schedule starting October 2024: $6,200 ÷ 27.5 = $225.45 a year, with the first year at 2.5 ÷ 12 of that. Dana's 2026 line 18 is $7,061.82 + $225.45 = $7,287.27. You can check these numbers with our free calculator.

Things that trip people up

“I didn't claim it, so it doesn't count”

When you sell, the IRS reduces your basis by depreciation that was allowed or allowable, meaning what you could have taken, whether or not you did. Skipping depreciation costs you the deduction now and does not save you tax later. If you missed years, a tax pro can usually fix it (often with Form 3115) rather than amending each year.

Recapture when you sell

The depreciation you took is taxed at sale as “unrecaptured section 1250 gain” at a maximum 25% rate. That is not a reason to skip it, but it is a reason to keep a clean record of every year's amount.

Form 4562

You file Form 4562 in the year a property (or improvement) is placed in service. In later years the building's depreciation simply goes on Schedule E line 18.

Appliances, carpets and furniture

These are 5-year property, and fences or driveways are 15-year land improvements. They use different methods (and may qualify for bonus depreciation), so keep them on a separate list for your tax pro.

Landlord Ledger runs this for you. It handles every building and every improvement, with prior-year totals and this year's deduction, and feeds Schedule E line 18 per property.

Get Landlord Ledger — $12 Free calculator

Sources: IRS Publication 527 (Residential Rental Property) and Publication 946 (How To Depreciate Property), Table A-6. General information, not tax advice.