By Marcus Patel | April 26, 2026
Depreciation is the biggest tax benefit of owning rentals — and the most misunderstood. Here's how it actually works, what it costs you on sale, and how to track it.
The deduction nobody explains right
Depreciation is the deduction that makes rental real estate tax-attractive. It is also the deduction that catches owners by surprise when they sell. Both halves are worth understanding before you buy your second property.
This article is general information, not tax advice. Talk to a CPA before making decisions.
!IRS tax form on desk with pen
What depreciation actually is
The IRS lets you treat the structure of a rental property — not the land — as something that wears out over time, and deduct a piece of it every year. The deduction is paper only: no money leaves your pocket. But it reduces the income you owe tax on.
For residential rental property, the depreciation period is 27.5 years (straight-line). Commercial is 39 years. So if your building (excluding land) cost $275,000, your annual depreciation is roughly $10,000.
Splitting purchase price between land and building
You cannot depreciate land. So the first thing your CPA does is split your purchase price into:
Common methods to split: the property tax assessor's land/building ratio, an independent appraisal, or a percentage convention (often 80% building / 20% land for typical SFR markets, but check your local).
The split matters. A 70/30 (buildi