Rental Property Depreciation Calculator

$727

$240,000

The building share of the purchase price.

$60,000

Land is never depreciated.

$2,095

At your marginal rate on the deduction.

$57,600

$240,000

$60,000

Recapture is measured against this figure at sale.

Scenario

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

Inputs

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.

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.

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.

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

• •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