What is Rental Property Depreciation? (2026)

How Rental Property Depreciation Works

You’ve figured out how to buy a rental property, list it, and screen tenants. But if you’ve never filed taxes as a landlord before, you might be surprised by the complexity of the process. Here are a few key points to understand about how rental properties depreciate.

Who Qualifies, and What Can Be Depreciated?

Simply owning a home isn’t enough to qualify you for depreciation. Generally, you’ll be eligible if all of the following apply:

• You own the property (even if you’re financing it)
• You use the property to generate income
• You have property whose useful life deteriorates over time
• You have property with a useful life of more than one year

Almost all residential landlords qualify for depreciation.

Importantly, rental property management companies generally don’t calculate depreciation for you. Depreciation is something you deduct on your personal income taxes.

When Depreciation Starts and Ends

For residential rentals, depreciation starts once the property is placed into service (used as a rental). It lasts for 27.5 years, or until you sell the property or stop using it as a rental.

Recovery Periods Under GDS and ADS

Most residential landlords use the General Depreciation System (GDS) when calculating depreciation, as it lets them recover their cost basis faster.

Recovering your cost basis takes longer with the Alternative Depreciation System (ADS), but in some cases, it may be mandatory. For example, you may have to use the ADS if you use your home for business purposes less than 50% of the time.

How to Calculate Annual Depreciation

Here’s a quick look at how to calculate depreciation using the GDS:

• Calculate your cost basis (the value of the property minus the land it’s on)
• Calculate annual depreciation by dividing your cost basis by 27.5

For most properties, depreciation ends up being around 3.6% of the cost basis per year.

Depreciating Improvements vs. Repairs

When you make a meaningful improvement to your rental property (like adding a deck), you can add the improvement’s value to your cost basis and depreciate it over time. Regular repairs are considered a business expense, so you can deduct them in the same year the repair is performed.

Tax Reporting and Depreciation Recapture

If you sell the property before you’ve recovered your cost basis, the IRS will “recapture” your depreciation savings. When a landlord sells the home at a gain, part of that gain may be taxed as ordinary income. You can report and calculate depreciation recapture using IRS Form 4797.

When You’re a Landlord, Attention to Detail Is Paramount

Whether you’re just figuring out how to become a landlord or have been in the game for decades, it’s important to calculate depreciation carefully. Taxes on residential rentals can be high, but when you know where to look, you can find plenty of areas to save.