Rental property depreciation
Depreciation lets an owner deduct the cost of a rental building over time, reflecting wear as it is used to produce income. Residential rental property is depreciated straight-line over 27.5 years using the mid-month convention. Land is never depreciated, so its value is carved out first.
How it is calculated
- Separate the building cost from the land value; only the building is depreciable.
- Residential rental: straight-line over 27.5 years, mid-month convention in the year placed in service.
- Improvements and personal property (appliances, furnishings) use shorter MACRS lives (5, 7, or 15 years).
- Bonus depreciation can accelerate the write-off of qualifying short-life assets in the year they are placed in service.
Why it matters
Depreciation is often the single largest deduction on a rental return, yet it is easy to miscalculate because it depends on cost basis, the in-service date, and the right recovery method. AXYS lists each capital improvement the business marks (date paid, vendor, amount, and whether a receipt is on file) so the owner’s tax preparer has what they need to figure it, and shows the preparer’s figure on the owner’s package when the owner or the business enters it.
Can land be depreciated?
No. Land does not wear out, so its value is excluded before depreciation is calculated on the building.
What is MACRS?
The Modified Accelerated Cost Recovery System, the IRS method that assigns recovery periods and conventions to depreciable property, including the 27.5-year life for residential rental buildings.
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