AtlasCalcsUtility Calculation Suite
2026-09-21 7 min read

Real Estate Depreciation Calculator

The annual straight-line deduction and the tax shield it creates for a property. Live calculator with worked steps and charts.

Calculator

Purchase Price Help
$

The price you pay, before closing costs.

Advanced options (3)
Building Share of Price(%) Help
%

The non-depreciable land keeps the rest.

Depreciation Period(years)
Marginal Tax Rate(%)
%

This property calculator runs on a full rental pro-forma: rent is annualised and reduced by vacancy, every operating expense is itemised to reach NOI, and the loan amortises monthly at the rate entered. Results update live as you type.

Recapture at sale

Depreciation reduces your basis, so the gain at sale is larger. Straight-line depreciation taken on real property is generally recaptured at up to 25%.

Results

Optimal

Annual Depreciation Deduction

$8,727

Straight line over 27.5 years.

Monthly Depreciation

$727

Depreciable Basis

$240,000

The building share of the purchase price.

Non-Depreciable Land

$60,000

Land is never depreciated.

Annual Tax Savings

$2,095

At your marginal rate on the deduction.

Total Tax Savings Over Life

$57,600

Total Depreciation

$240,000

Adjusted Basis After Depreciation

$60,000

Recapture is measured against this figure at sale.

Live results update as you type — currently showing annual depreciation deduction of $8,727. Replace the defaults with your own rent roll, tax bill and insurance quote for an exact comparison.

Visualizations

Purchase Price Split

240,000Building (depreciable)
60,000Land (not depreciable)

Cumulative Depreciation Taken

Building Share of Price

80%
0100

Formula

Straight-line depreciation spreads the building’s cost — everything except the land — over 27.5 years for residential rentals or 39 years for commercial property.

Annual depreciation = (Price × Improvements share) ÷ Recovery period

Variables

SymbolNameUnitDescription
BDepreciable basis$Price times the building share
NRecovery periodyears27.5 residential or 39 commercial
DAnnual deduction$/yrBasis divided by the recovery period

Explanation

Depreciation is a paper loss that shelters real cash flow — often the difference between taxable and actual income on a leveraged rental, and the reason a cash-flowing property can show a tax loss.

Step-by-Step Calculation

Follow each step to understand how the result is calculated from your inputs.

Step 1

Split the purchase price between land (not depreciable) and improvements.

Depreciable basis = price × building share %
Price:$300,000
Building share:80.00%
Intermediate: $300,000 × 0.8
Result: $240,000 basis ($60,000 land)
Step 2

Divide the basis by the recovery period the tax code allows.

Annual depreciation = basis ÷ recovery years
Basis:$240,000
Years:27.5
Intermediate: $240,000 ÷ 27.5
Result: $8,727 a year
Step 3

Value the deduction at your marginal tax rate.

Tax saving = depreciation × marginal rate
Rate:24.00%
Intermediate: $8,727 × 0.24
Result: $2,095 saved a year
Final Answer
$8,727

Worked Examples

See how the calculator works with different scenarios.

Scenario

The real estate depreciation calculator run on the values above, showing the full calculation path rather than only the answer.

Inputs

Price:300000

Calculation

1. Split the purchase price between land (not depreciable) and improvements. → $240,000 basis ($60,000 land) 2. Divide the basis by the recovery period the tax code allows. → $8,727 a year 3. Value the deduction at your marginal tax rate. → $2,095 saved a year

Result

Annual Depreciation Deduction: $8,727

Interpretation

$240,000 of depreciable basis over 27.5 years is $8,727 a year, worth $2,095 at a 24.00% marginal rate. Adjusted basis falls to $60,000.

Understanding Your Result

Your Result: Annual Depreciation Deduction: $8,727

Typical range: Residential rental property recovers over 27.5 years and commercial over 39; a cost segregation study can accelerate much of that into the first decade.

What This Means

Depreciation is a paper loss that shelters real cash flow — often the difference between taxable and actual income on a leveraged rental, and the reason a cash-flowing property can show a tax loss.

Why It Matters

$240,000 of depreciable basis over 27.5 years is $8,727 a year, worth $2,095 at a 24.00% marginal rate. Adjusted basis falls to $60,000.

Professional Interpretation

$240,000 of depreciable basis over 27.5 years is $8,727 a year, worth $2,095 at a 24.00% marginal rate. Adjusted basis falls to $60,000.

How this is calculated

Straight-line depreciation spreads the building’s cost — everything except the land — over 27.5 years for residential rentals or 39 years for commercial property.

What drives the result

Time value of money: cash received in later years is worth less than cash today, so discounted metrics (IRR, NPV, discounted payback) re-express the whole stream at today’s value. Simple metrics (cap rate, cash-on-cash, equity multiple) ignore timing but are faster to compute and communicate.

Recommendations

  • •Depreciation is a deferral, not a gift: the basis it reduces is what recapture is taxed against when you sell.
  • •Ask a CPA about a cost segregation study — on a larger purchase it can front-load five- or six-figure deductions.

Educational Content

Introduction

Return metrics compress a whole investment into one comparable number. Each answers a different question: cash-on-cash prices the first year, IRR prices the whole hold including the sale, equity multiple counts total distributions, and NPV tests the deal against your own hurdle rate.

Concept Explanation

Time value of money: cash received in later years is worth less than cash today, so discounted metrics (IRR, NPV, discounted payback) re-express the whole stream at today’s value. Simple metrics (cap rate, cash-on-cash, equity multiple) ignore timing but are faster to compute and communicate.

Applications

▸Choosing between a rental, a note and a passive fund on one page
▸Setting an offer price by solving for the return you require
▸Reporting the performance of an existing holding to partners or lenders
▸Comparing a 5-year flip with a 15-year hold on a common basis

Benefits

  • •Makes a multi-year, multi-cash-flow investment comparable with anything else you could buy
  • •IRR and NPV capture the size and the timing of returns, not just their total
  • •Equity multiple gives a quick, intuitive total-cash view for partners

Limitations

  • •IRR assumes interim cash flows reinvest at the IRR itself, which overstates long holds; check the equity multiple alongside it
  • •Exit assumptions — growth rate and selling costs — drive more of the answer than most operating inputs
  • •None of the metrics price risk: a stable single-family rental and a speculative development can share an IRR
  • •Recapture at sale: Depreciation reduces your basis, so the gain at sale is larger. Straight-line depreciation taken on real property is generally recaptured at up to 25%.

Best Practices

  • •Pick a discount rate you actually require — 8–12% is common for leveraged rentals — and let NPV veto deals below it
  • •Run the return at three exit scenarios: flat, +3% and −5% growth; the spread is the risk
  • •Report cash-on-cash for year one, IRR for the hold, and equity multiple for the total picture

Common Misconceptions

Myth: A high equity multiple means a great investment.
Truth: A 2x multiple over 20 years is under 4% a year — always pair the multiple with the holding period or the IRR.
Myth: Appreciation is guaranteed return.
Truth: Appreciation is a market assumption; income is contractual. Conservative underwriting leans on the rent, not the multiple of it.
Myth: ROI and cap rate are interchangeable.
Truth: Cap rate prices the property; ROI measures your return on cash after financing. The gap between them is leverage.

Practical Tips

  • •A cost segregation study can move 20–30% of basis into 5-, 7- and 15-year property and accelerate the deductions
  • •Remember depreciation recapture at sale — it is taxed at up to 25%, so model the exit, not just the years of shelter

Common Mistakes

Depreciating the land.
Land never depreciates; only the improvements share belongs in the basis.
Assuming the deduction is free money.
Recapture reverses much of the benefit at sale; the net benefit is the timing.

Assumptions

This calculator makes the following assumptions to provide estimates:

Straight-line only: The model uses standard straight-line recovery, not accelerated or bonus methods.
US tax convention: Recovery periods follow IRC §168 for US residential and commercial rental property.

Limitations

Be aware of these limitations when using this calculator:

Limitation: IRR assumes interim cash flows reinvest at the IRR itself, which overstates long holds; check the equity multiple alongside it
Limitation: Exit assumptions — growth rate and selling costs — drive more of the answer than most operating inputs
Limitation: None of the metrics price risk: a stable single-family rental and a speculative development can share an IRR

Frequently Asked Questions

Answers to common questions about this calculator.

What share of the purchase price can be depreciated?
The improvements share — commonly 75–85% for houses on lots, higher for buildings with little land. An appraisal or cost segregation study fixes the real split.
Who uses the real estate depreciation calculator?
It is used by rental investors screening and pricing deals, by owner-operators budgeting expenses and rents, and by agents, lenders and advisers sanity-checking the numbers before money moves. It sits in the Returns & Metrics group of the Real Estate Investing section of Atlascalcs.
How accurate is the real estate depreciation calculator?
Every figure follows from the inputs using standard property underwriting mathematics, so it is accurate to the quality of the values you enter. Lenders, appraisers and tax assessors each apply their own adjustments, so expect small differences against formal documents.
Do I need to sign up or pay to use this calculator?
No. Every Atlascalcs calculator is free, runs entirely in your browser and never asks for an account. Nothing you enter is uploaded or stored.
Can I use these numbers in a formal valuation or loan application?
The calculator is an underwriting aid, not an appraisal or a lender offer. Lenders and appraisers apply their own adjustments, so treat the output as a disciplined estimate to bring to those conversations.
How do I choose realistic inputs?
Pull rent from comparable leases, property tax from the current assessment, insurance from a quote, and management and maintenance from what operators in your market actually pay. Seller pro-formas are marketing documents.

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Related Guides

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Glossary

Technical terms used in mortgage calculations explained in plain language.

Depreciation
The tax deduction that spreads a building’s cost (not the land) over 27.5 residential or 39 commercial years.
Adjusted Cost Basis
Purchase price plus capital improvements minus depreciation claimed; the basis your capital-gains tax is computed on.

Authoritative References

Trusted sources and standards referenced by this calculator.

Applicable Standards

Level-payment amortisation, payments assumed in arrearsIncome and expenses annualised; percentages entered as annual ratesStraight-line depreciation per IRC §168 recovery periodsMoney rounded for display only; all calculations run at full precision

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Page Information

Last Updated:

2026-09-21

Version:

2.0.0

License:

Free to use for educational and professional purposes.