JB PARCELDepreciation Calculator
Depreciation is a deduction you take without spending anything, which is most of the tax case for owning real estate. Land does not depreciate, so the split matters as much as the schedule.
How this calculator works
Depreciable basis is what you paid, plus capitalized closing costs and capital improvements, minus the value of the land. Land never depreciates, which is why the allocation is the single most consequential input on this page. A 20 percent land allocation on a $340,000 property leaves $275,360 of depreciable basis. A 30 percent allocation leaves $240,940, and about $1,250 a year of deduction disappears with it.
The most defensible easy source for the split is the county assessment. Assessors publish separate land and improvement values, and the ratio between them is a documented, third-party allocation you can point to. A formal appraisal allocation is stronger still. Picking a number because it produces a good result is how you lose an audit.
Residential rental property depreciates straight line over 27.5 years. Nonresidential real property, meaning commercial, depreciates over 39. Straight line means the same deduction every full year. In the first year the mid-month convention applies: you get a half month in the month you place it in service, plus the remaining months. Placed in service means ready and available to rent, not the closing date, and if a property closes in June and finishes rehab in September, September is the date that matters.
Cost segregation is the accelerator. A study reclassifies components like appliances, carpet, cabinetry, landscaping, and site improvements into 5, 7, and 15 year lives, which pulls deduction forward. Studies typically reclassify 15 to 30 percent of basis on residential and cost a few thousand dollars, so they pay on larger properties and on holds long enough to use the deduction. Bonus depreciation percentages are set by federal law and have changed repeatedly, so this calculator takes the percentage as an input rather than guessing your tax year.
Worked example: a $340,000 rental placed in service in September
Twenty percent land allocation, $4,200 of capitalized closing costs, 24 percent marginal rate.
| Total basis | $344,200 |
|---|---|
| Land (20%) | $68,840 |
| Depreciable basis | $275,360 |
| Annual depreciation | $10,013 |
| First year (mid-month, September) | $2,920 |
| Annual tax savings at 24% | $2,403 |
| Accumulated after 10 years | $100,131 |
Ten thousand dollars a year of deduction against income you did not have to spend anything to shelter. If the property nets $4,000 of cash flow, the entire amount is sheltered with deduction left over. That is the whole tax argument for rentals, and it is also the reason the $100,131 of accumulated depreciation shows up as recapture when you sell.
Questions investors ask
How do I determine the land allocation?
The most common defensible method is the county assessment ratio: take the assessor's land value divided by their total value, and apply that percentage to your purchase price. A formal appraisal with a separate land allocation is stronger. What you cannot do is pick a low land number because it produces a bigger deduction. Pull both values off the parcel record on the JB PARCEL map and document where they came from.
What is the difference between 27.5 and 39 year depreciation?
27.5 years applies to residential rental property, meaning buildings where 80 percent or more of gross rental income comes from dwelling units. 39 years applies to nonresidential real property, which covers office, retail, industrial, and mixed-use that fails the 80 percent test. Short-term rentals with an average stay of seven days or less can be treated as nonresidential, which is a fact pattern worth raising with your CPA specifically.
What is depreciation recapture?
When you sell, the depreciation you took, or were allowed to take, comes back into income. The portion attributable to prior straight-line depreciation on real property is unrecaptured section 1250 gain and is generally taxed at up to 25 percent, higher than the long-term capital gains rate on the rest of the gain. A 1031 exchange defers it. Note that recapture applies whether or not you actually claimed the depreciation, which is why skipping it is never a strategy.
Is cost segregation worth it?
It depends on property size, your marginal rate, whether you can actually use the deductions given passive activity rules, and how long you will hold. A study on a $340,000 single-family rental usually does not clear the cost. On a $2 million commercial building or a portfolio, it frequently does. The deduction is accelerated, not created, so it is a timing benefit that is worth the most when your rate is high now and you plan to hold or exchange rather than sell soon.
Does depreciation apply if the property loses money?
The deduction still exists, but whether you can use it against other income depends on passive activity loss rules. Passive losses generally offset only passive income, with a limited allowance for actively participating owners under certain income thresholds, and suspended losses carry forward until you have passive income or dispose of the property. Real estate professional status changes the analysis entirely. This is exactly the territory where a CPA earns their fee.
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Screening a real property? Pull its appraised value, assessed value, acreage, land use, and last recorded sale off the JB PARCEL parcel map and drop the real numbers into this calculator instead of guessing. Coverage runs across every county we carry.