What depreciation means

Depreciation is a tax concept that spreads the cost of a rental property over its useful life.

• The IRS allows depreciation on rental buildings
• Land value is excluded
• Depreciation reduces taxable income
• It does not require a cash expense

Which properties qualify

• Residential rental properties
• Commercial rental properties
• Properties placed in service as rentals
• Converted primary residences once rented

How depreciation is calculated

Depreciation starts with the property basis.

• Purchase price
• Plus eligible closing costs
• Plus capital improvements
• Minus land value

Capital planning: Capital Expenditures.

Depreciation timelines

• Residential rentals are depreciated over a standard recovery period
• Commercial properties use a longer schedule
• Depreciation begins when the property is placed in service
• Partial year depreciation applies in the first and last year

Repairs versus improvements

Repairs and improvements are treated differently for depreciation.

• Repairs are usually deducted immediately
• Improvements are depreciated over time
• Misclassification increases tax risk

Related guidance: Repair vs Replace Decisions.

Depreciation and cash flow

Depreciation reduces taxes without reducing cash flow.

• Lowers taxable income
• Improves after tax cash flow
• Can offset rental income

Financial context: Cash Flow Analysis.

Depreciation recapture

When a rental property is sold, prior depreciation may be recaptured.

• Applies even if depreciation was not claimed
• Recapture affects sale proceeds
• Planning can reduce surprises

Need help with depreciation planning

We help landlords coordinate depreciation strategy with accounting and long term planning.

Related tax and finance pages

Depreciation FAQs

Own rentals in Florida and need help buying or selling investment property Visit Golden Hour Real Estate. Need financing for rental properties Visit 360 Mortgage. Need insurance guidance for rentals Visit Henson Agency.