Depreciation Calculator Formula

Understand the math behind the depreciation calculator. Each variable explained with a worked example.

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Formulas Used

Annual Depreciation

annual_depreciation = building_value / recovery_period

Monthly Depreciation

monthly_depreciation = building_value / recovery_period / 12

Total Depreciation Over Recovery Period

total_depreciation = building_value

Variables

VariableDescriptionDefault
building_valueBuilding Value (Excluding Land)(USD)300000
recovery_periodRecovery Period(years)27.5

How It Works

Real Estate Depreciation for Tax Purposes

The IRS allows property investors to deduct the cost of buildings (not land) over a set recovery period using straight-line depreciation.

Formula

Annual Depreciation = Building Value / Recovery Period

Recovery Periods

  • Residential rental property: 27.5 years
  • Commercial property: 39 years
  • Land is never depreciable

    • Worked Example

    A residential rental property has a building value of $300,000 (excluding land) with a 27.5-year recovery period.

    building_value = 300000recovery_period = 27.5
    1. 01Annual depreciation: $300,000 / 27.5 = $10,909.09
    2. 02Monthly depreciation: $10,909.09 / 12 = $909.09
    3. 03Over the full recovery period, the entire $300,000 building value is depreciated

    Frequently Asked Questions

    Can I depreciate the land?

    No. Only the building and improvements can be depreciated. You must allocate the purchase price between land and building, typically using the tax assessor ratio or an appraisal.

    When does depreciation start?

    Depreciation begins when the property is placed in service for rental use. The first and last years may be prorated based on the month placed in service using mid-month convention.

    What happens when I sell a depreciated property?

    Depreciation taken is recaptured at a 25% tax rate upon sale. This is separate from capital gains tax and is calculated on the total depreciation claimed during ownership.

    Learn More

    Guide

    How to Calculate Depreciation

    Learn the four main depreciation methods — straight-line, declining balance, sum-of-years digits, and units of production — with formulas and examples for each.

    Ready to run the numbers?

    Open Depreciation Calculator