Rental property · Guide

Rental property depreciation: land, building and the 27.5-year table

Published Oct 24, 2026 By Smart Accounting

A rental house is residential rental propertyResidential rental property. A building where 80% or more of the gross rental income comes from dwelling units. Recovered over 27.5 years. Glossary when 80% or more of its gross rental income comes from dwelling units. Its building is recovered over 27.5 years with the straight-line method and the mid-month convention [Pub 946, ch. 4]. The land under it is never depreciated [Pub 527, ch. 2].

Step 1: Work out your basis

Start with the purchase price. Add the settlement fees and closing costs that belong in basis: abstract fees, charges for installing utilities, legal fees, recording fees, surveys, transfer taxes, title insurance, and amounts the seller owed that you agreed to pay. Do not add fire insurance premiums, rent for occupancy before closing, or loan costs such as points, loan assumption fees, credit reports and lender-required appraisals [Pub 527, ch. 2, Cost Basis]. If you assumed the seller’s mortgage, it is part of your cost.

Step 2: Separate the land

Divide the cost between land and building in proportion to their fair market values when you bought. If you are not sure of those values, you can use the property tax assessment. Publication 527’s example: a $200,000 house and lot assessed at $160,000, of which $136,000 for the house, gives an 85% building share and a $170,000 building basis [Pub 527, ch. 2].

Step 3: Find the month you placed it in service

You place rental property in service when it is ready and available for rent, even if no tenant has moved in. In Publication 527’s example, a house made ready on July 5, advertised in July and first rented September 1 is placed in service in July [Pub 527, ch. 2].

If you convert your former home to a rental, the depreciable basis of the building is the lower of its fair market value and your adjusted basis on the date of conversion [Pub 527, ch. 4].

Step 4: Apply Table A-6

The mid-month convention treats the building as placed in service in the middle of its month, so the first-year percentage depends on the month: 3.485% for January down to 0.152% for December, then 3.636% for full years [Pub 946, App. A, Table A-6]. All 12 columns are on our MACRS tables page.

Worked example

A rental house bought for $350,000, with $70,000 of that attributed to the land, placed in service in June 2026:

Publication 527 has a shorter version: a $160,000 building placed in service in February gives $5,091 in the first year (3.182%) [Pub 527, ch. 2]. Run your own numbers with the rental preset.

Improvements, appliances and furniture

• Improvements you capitalize, such as a new roof or an addition, are generally depreciated as separate property, starting when they are placed in service [Pub 527, ch. 1]. A structural improvement to the building uses 27.5 years from its own placed-in-service month.
• Appliances, carpets and furniture used in a residential rental are 5-year property [Pub 946, ch. 4]. They are qualified property for bonus depreciation, which is 100% for items acquired after January 19, 2025 unless you elect out [Pub 946, ch. 3].
• Land improvements such as fences, driveways and sidewalks are 15-year property [Pub 946, ch. 4].

What happens when you sell

Depreciation lowers your adjusted basis, which raises your gain. The part of a long-term gain on real property that is due to depreciation is unrecaptured section 1250 gain, figured on a worksheet in the Schedule D instructions [Pub 544, ch. 4]. See depreciation recapture for a worked sale.