The deduction you didn’t write a check for.
Depreciation lets you deduct the cost of the building a little each year, for decades — no cash out of pocket. It’s often a landlord’s single largest write-off, and the one most commonly left on the table.
The idea
Wear and tear, spread over 27.5 years
The IRS treats a building as something that wears out over time, so it lets you deduct its cost gradually instead of all at once. For residential rentals that clock is 27.5 years. Split the purchase price between land and structure, and the structure’s share is what you depreciate.
- Residential buildings depreciate over 27.5 years
- The land underneath is never depreciable — only the structure
- You claim it on Schedule E, line 18, every year
The catch
It comes back when you sell
Depreciation isn’t free money — when you sell, the IRS recaptures the deductions you took. But claiming it is not optional in practice: the tax code assumes you did, whether or not you actually claimed it. So you may as well take the benefit you’re going to be charged for anyway.
- Depreciation lowers your taxable income now
- On sale, the IRS “recaptures” what you claimed
- Still usually worth it — a deduction today beats one never taken
Not tax advice. Cost-basis allocation, bonus depreciation, and recapture rules get intricate fast. Run your numbers past a tax professional before you rely on them.
Track the basis, claim the deduction.
Keep purchase records, improvements, and in-service dates on the property they belong to — so depreciation is a lookup, not a guess.