Rental Property Depreciation: How the 27.5-Year Rule Works for US Landlords

Rental property depreciation in the US lets a landlord deduct the cost of a residential rental building (not the land) over 27.5 years under the IRS's Modified Accelerated Cost Recovery System (MACRS), starting in the month the unit is ready and available for rent. The deduction is reported on Schedule E with your federal return.

Depreciation is often the largest deduction a landlord has, and it is one of the easiest to get wrong because nothing reminds you to take it. This guide follows IRS Publication 527, Residential Rental Property (the 2025 edition) and covers what can be depreciated, when it starts, how to separate land from the building, how to read the IRS percentage table with a worked example, how improvements and appliances are handled, and what happens if you skip it. It is federal income tax only; your state may have its own rules.

What can a US landlord depreciate on a rental property?

A US landlord can depreciate the rental building and other property used in the rental that wears out, but never the land. Publication 527 says you can depreciate property you own that is used in a rental activity and has a determinable useful life. On land it is direct: "You can't depreciate the cost of land because land generally doesn't wear out, become obsolete, or get used up." Costs of clearing, grading, planting and landscaping are usually part of the land and also cannot be depreciated.

Different assets in a rental have different recovery periods. Table 2-1 in Publication 527 lists the common ones under the General Depreciation System (GDS):

When does depreciation start on a rental property in the US?

Depreciation on a US rental starts when the property is placed in service, which Publication 527 defines as when it is "ready and available for rent", not when the first tenant moves in. In one of the publication's examples, a house that was ready for rent in July but not actually rented until September is placed in service in July. In another, an owner who made repairs in August and September and listed the house on October 1 placed it in service on October 1, even though it was rented on December 1.

If you turn a former home into a rental, you begin depreciating it when its use changes to producing income. Its basis for depreciation is "the lesser of its adjusted basis or its FMV" (fair market value) on the date of the change. That rule matters: if the home is worth less than you paid, you depreciate the lower value.

Depreciation continues while a unit is temporarily empty. Publication 527 says that if you must make repairs after a tenant moves out, "you still depreciate the rental property during the time it isn't available for rent." It stops when you have recovered your full basis or when you retire the property from service, for example by selling it or converting it to personal use.

How do you split the purchase price between land and building?

US landlords must divide the purchase price between land and building in proportion to their fair market values at the time of purchase, and only the building share is depreciated. Publication 527 says that if you are not certain of the values, "you can divide the cost between them based on their assessed values for real estate tax purposes."

The publication's example: a house and land bought for $200,000, with a tax assessment of $160,000, of which $136,000 was for the house and $24,000 for the land. The house is 85% of the assessed value ($136,000 / $160,000), so 85% of the $200,000 price, or $170,000, goes to the building.

Your basis also includes certain purchase costs. Publication 527 lists settlement fees and other costs among the items that form part of the basis, and says mortgage-related costs such as commissions, abstract fees and recording fees are capital expenses that are part of your basis rather than deductible interest.

How do you calculate 27.5-year depreciation? A worked example

US residential rental property is depreciated straight-line over 27.5 years using the mid-month convention, and the IRS publishes the yearly percentages in Table 2-2d of Publication 527. The mid-month convention treats property placed in service at any point in a month as placed in service at the middle of that month, so the first year's percentage depends on the month.

Publication 527's own example: you buy a single-family rental house for $185,000 and place it in service on February 8. The contract shows $160,000 for the building and $25,000 for the land, so your basis for depreciation is $160,000. Table 2-2d gives 3.182% for property placed in service in February of year 1, so the first-year deduction is $5,091 ($160,000 x 3.182%).

In later full years, the same row of Table 2-2d gives the percentage; for a straight-line 27.5-year life that works out to roughly 1/27.5 of the basis each full year. Keep using the row for the month the property was first placed in service.

How are improvements, appliances and repairs handled?

In the US, an improvement to a rental is depreciated as a separate item, while a repair is deducted in the year you pay it. Publication 527 says to treat additions or improvements "as separate property items for depreciation purposes", with the recovery period that would apply to the original property. Its example is a house rented since 1999 that gets an addition placed in service in 2025: the addition is depreciated over 27.5 years starting in 2025, on its own schedule.

Appliances, carpets and furniture you supply are 5-year property under GDS (Table 2-1), so a new refrigerator is not lumped into the building. Publication 527 has a full section on telling repairs from improvements (betterments, restorations and adaptations), plus a de minimis safe harbor and a safe harbor for routine maintenance; read it before you classify a large expense.

For 2025, Publication 527 also notes that some property used in residential rental activities may qualify for a special depreciation allowance, figured before regular depreciation, with the details in chapter 3 of Publication 946 and the Form 4562 instructions.

Where do US landlords report depreciation?

US landlords report rental depreciation on Schedule E (Form 1040), line 18, and attach Form 4562 in some years. Publication 527 says you must complete and attach Form 4562 when you claim depreciation (including the special allowance) on property placed in service during the year, or depreciation on listed property such as a car. Otherwise you can figure depreciation on your own worksheet and keep it with your records.

If depreciation pushes the rental into a loss, the passive activity rules decide how much of that loss you can use this year. Our guide to the $25,000 passive loss allowance for rental property explains the limits. Canadian owners of US rentals claim the same depreciation on a nonresident return: see filing a 1040-NR with Schedule E as a Canadian landlord and the full tax guide for Canadians who own a US rental.

What happens if you don't claim depreciation?

If a US landlord does not claim depreciation, the basis of the property is still reduced as if they had. Publication 527 says: "If you didn't claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted." In other words, skipping it can cost you the deduction now and still increase your taxable gain when you sell.

To fix an incorrect amount, Publication 527 points to an amended return on Form 1040-X, or, where an amended return is not allowed, a change in accounting method; the details are in "How Do You Correct Depreciation Deductions?" in Publication 946.

Action steps

1. Find the date each property was first ready and available for rent.
2. Split the purchase price between land and building using fair market values or the tax assessment ratio.
3. Add qualifying purchase costs to the building basis.
4. Look up the first-year percentage in Table 2-2d for the month placed in service.
5. List appliances, carpets, furniture and improvements separately with their own recovery periods.
6. Report on Schedule E and attach Form 4562 in any year it is required.

Frequently asked questions

Why is residential rental property depreciated over 27.5 years?

It is the recovery period the IRS assigns to residential rental property under the General Depreciation System of MACRS, listed in Table 2-1 of Publication 527. Additions and improvements to the building use the same 27.5-year period.

Can I depreciate a rental property before a tenant moves in?

Yes. Under Publication 527, depreciation begins when the property is ready and available for rent, even if it has not yet been rented.

Is depreciation optional for a US rental property?

Claiming it is up to you, but the basis reduction is not. Publication 527 says you must reduce your basis by the depreciation you could have deducted even if you did not claim it.

Can I depreciate the land under a rental house?

No. Publication 527 says land cannot be depreciated because it generally does not wear out, become obsolete or get used up. Clearing, grading, planting and landscaping costs are usually part of the land as well.

Does depreciation stop when the rental is empty?

No. Depreciation continues while the property is temporarily idle, for example during repairs between tenants, according to Publication 527.

The bottom line

Rental property depreciation in the US comes down to four facts: land out, building over 27.5 years, start when it is ready to rent, and claim it every year because the basis drops either way. Put the numbers in a simple asset list on day one and the deduction looks after itself.