The Real Estate Depreciation Calculator spreads a building's cost over the IRS-defined MACRS recovery period, 27.5 years for residential rental property or 39 years for commercial property, using the straight-line method required for real property under current tax rules. Enter the building's cost, its property class and a salvage value if applicable, and the calculator returns the annual depreciation expense and full schedule.
Real property depreciation works differently from equipment or vehicle depreciation in United States tax law. Rather than choosing among several accelerated methods, residential and commercial buildings are depreciated on a straight-line basis over their assigned recovery period, with a mid-month convention applied in the placed-in-service and disposal years that this calculator's annual figures approximate.
*These results are estimates for information only, not tax advice; consult a tax professional for your actual filing.*
Understand the MACRS real estate recovery periods
MACRS, the Modified Accelerated Cost Recovery System, assigns real property to one of two standard recovery periods for depreciation purposes: residential rental property depreciates over 27.5 years, while nonresidential commercial property depreciates over 39 years.
Both classes use the straight-line method exclusively for the building structure itself; land is never depreciated, since it is not considered to wear out or become obsolete the way a building does.
The Real Estate Depreciation Calculator applies whichever recovery period corresponds to the property class selected, converting the building's depreciable cost into an annual expense figure that reflects the straight-line rate for that specific recovery period.
Work through a worked example
Take a residential rental building with a depreciable cost of $300,000, no separate salvage value assumed (land value should already be excluded from this figure, since land is never depreciated). Under the 27.5-year residential recovery period, the straight-line rate is roughly 1 divided by 27.5, or about 3.636% per year of the depreciable base.
Applying that rate to the $300,000 building cost produces a year-one depreciation expense of approximately $10,454.55. Because MACRS real estate uses a mid-month convention, assuming the property was placed in service partway through its first month, the first partial year's expense is prorated slightly lower than a full year would be, which is reflected in that year-one figure. From year two onward, once a full 12 months of the recovery period applies, the annual expense rises slightly to approximately $10,909.09 per year, continuing at that steady rate for most of the recovery period before another partial-year adjustment applies in the final year of disposal.
Compare residential and commercial recovery periods
Choosing the commercial property class instead of residential changes the recovery period from 27.5 years to 39 years, which lowers the annual straight-line rate to roughly 1 divided by 39, or about 2.564% per year.
The same $300,000 building cost would produce a smaller annual depreciation expense under the longer 39-year commercial schedule than under the shorter 27.5-year residential schedule, since the same total cost is being spread across more years.
The Real Estate Depreciation Calculator lets the property class be switched directly, so the difference between residential and commercial treatment on an identical building cost is easy to see without recalculating the rate by hand.
See why land value must be excluded first
A critical step before using this calculator correctly is separating land value from building value, since land itself is never depreciable under any method, including MACRS. Only the portion of a property's purchase price allocated to the building structure, improvements and other depreciable components should be entered as the cost figure here.
Property tax assessments, appraisals, or a reasonable allocation method are typically used to split a total purchase price between land and building for this purpose. Entering a property's full purchase price, including land, without first separating out the land value will overstate the depreciable base and therefore overstate the calculated annual expense.
Know the limits of this calculation
This calculation applies the standard MACRS straight-line rate for the selected recovery period and approximates the mid-month convention's effect on the first year.
It does not account for land value separation (which must be done before entering a cost figure), cost segregation studies that reclassify certain building components into shorter-lived asset classes, qualified improvement property rules, or bonus depreciation provisions that may apply to specific components of a real estate purchase under current tax law.
Use the Real Estate Depreciation Calculator to understand the basic MACRS real property mechanic and to build a planning estimate. For an actual tax return, work with a qualified tax professional who can apply cost segregation, land allocation and current law correctly to your specific property.
Frequently asked questions
How many years does residential rental property depreciate over under MACRS?
Residential rental property depreciates over 27.5 years under MACRS, using the straight-line method exclusively, which produces an annual rate of approximately 3.636% of the depreciable building cost.
How many years does commercial property depreciate over under MACRS?
Nonresidential commercial property depreciates over 39 years under MACRS, using the straight-line method, which produces an annual rate of approximately 2.564% of the depreciable building cost, lower than the residential rate since the same cost is spread over more years.
How much does a $300,000 residential building depreciate annually?
A $300,000 residential rental building depreciates approximately $10,454.55 in its first partial year under the mid-month convention, then approximately $10,909.09 per year for most of the remaining 27.5-year recovery period.
Does land get depreciated along with the building?
No, land is never depreciated under any method, including MACRS. Only the portion of a property's cost allocated to the building and other depreciable improvements should be entered into this calculator; land value must be excluded first.
Why is the first year's depreciation different from later years?
The first year's depreciation is prorated lower because MACRS real estate uses a mid-month convention, treating the property as placed in service partway through its first month rather than at the very start of a full year, which reduces that year's expense proportionally.
Summary
The Real Estate Depreciation Calculator spreads a building's depreciable cost over its MACRS recovery period, 27.5 years for residential rental property or 39 years for commercial property, using the required straight-line method. A $300,000 residential building depreciates approximately $10,454.55 in its prorated first year and approximately $10,909.09 per year afterward.
Land value must always be excluded before entering a cost figure, since land is never depreciable. This calculation approximates the mid-month convention and does not account for cost segregation or bonus depreciation. Figures shown are estimates, not tax advice.