Decision guide

Rental Property Depreciation: Rules, Schedules & 100% Bonus Guide

How rental property depreciation actually works: the land split, 27.5- and 39-year schedules, the mid-month convention, cost segregation with the permanently restored 100% bonus depreciation, the ADS election, and the 25% recapture waiting at sale — worked end to end on one $400,000 property.

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Published: 2026-10-23

Updated: 2026-10-23

Quick Answer

Rental Property Depreciation: Rules, Schedules & 100% Bonus Guide is worth reviewing before you trust a calculator result because the assumptions behind the model usually matter as much as the formula.

Key Takeaways

Split land from building before anything else — land never depreciates, and the $400,000 building basis is what every figure scales from
Place the property in service by December 31 to claim it in the current tax year — but a December placement earns only a half-month under the mid-month convention ($606.06, not $14,545.45)
Check the acquisition date before assuming 100% bonus: contracts signed before January 20, 2025 stay on the old 40%/20% phase-down
Price the ADS election before making it — $1,212.12 less per year on a $400,000 basis, and ADS property cannot take bonus depreciation at all
Model recapture before celebrating the deduction: accumulated depreciation is taxed back at up to 25% (Section 1250) or ordinary rates (Section 1245) on sale — or deferred with a 1031 exchange

What depreciation is — and why the land split comes first

Depreciation is the tax code's recognition that a building wears out: the IRS lets you deduct the cost of income-producing real estate a slice at a time over its recovery period instead of all at once. Two facts govern everything else in this guide. First, land never depreciates — only the building and its components do — so every calculation starts by splitting the purchase price between land (not depreciable) and building (your depreciable basis). Second, the recovery period depends on the property type: residential rental property depreciates straight-line over 27.5 years, nonresidential property over 39 years. The running example in this guide is a duplex bought for $500,000 with 20% of the price allocated to land — a $100,000 land value and a $400,000 depreciable basis. Every figure below scales from that $400,000. Get the land split wrong and every downstream number is wrong with it; the cost segregation calculator starts with exactly this allocation.

Worked example, part 1: straight-line on a $400,000 basis

Plain straight-line depreciation is one division: $400,000 ÷ 27.5 years = $14,545.45 per year. That is the full annual deduction for the duplex, the same in year 2 as in year 20, until the basis is fully recovered after 27.5 years. What is it worth? A deduction is not a credit — it shelters income at your marginal rate, so at a 24% federal bracket the $14,545.45 deduction is worth about $3,490.91 a year in tax not paid. Two honest caveats belong here. The deduction only shelters income dollar-for-dollar up to the rental income and passive-loss rules that apply to you, and it is not optional in spirit: basis is reduced by depreciation allowed or allowable, so skipping the deduction does not spare you the recapture described below — it just gives away the benefit. Run your own basis through the depreciation calculator to see the year-by-year schedule; this straight-line path is the baseline the accelerated paths are measured against.

Placed in service, the mid-month convention, and the December trap

You cannot depreciate a property before it is placed in service — ready and available for rent, not merely purchased. For calendar-year taxpayers that creates a hard seasonal deadline: a property placed in service by December 31 counts in the current tax year; one placed in service January 2 waits a full year. But the mid-month convention (IRC §168(d)(2)) disciplines the other end of the year: real property is treated as placed in service at the midpoint of its placement month, so Year 1 is prorated by the factor (12.5 − placement month) ÷ 12. The extreme case shows why timing matters. Place the $400,000 duplex in service on December 20, 2026 and the IRS treats it as placed in service December 15: the factor is 0.5/12, and the Year-1 deduction is $14,545.45 × 0.5/12 = $606.06 — not a typo, six hundred dollars — with the full $14,545.45 arriving only in Year 2. A December closing is still worth doing for the year it starts, but anyone projecting a big first-year write-off from a late-December purchase is modeling a deduction the convention does not allow.

Worked example, part 2: cost segregation plus 100% bonus on the same property

Same duplex, same $400,000 basis, different engineering. A cost segregation study reclassifies parts of the building — appliances, flooring, fixtures, site work — into shorter-lived property: in the standard split used by the cost segregation calculator, 20% of basis lands in the 5-year bucket, 10% in the 15-year bucket, and 70% stays with the 27.5-year building. With 100% bonus depreciation, the 5- and 15-year buckets are deducted entirely in Year 1: ($80,000 + $40,000) = $120,000 of bonus, plus the building's straight-line year of $280,000 ÷ 27.5 = $10,181.82, for a Year-1 total of $130,181.82 — about nine times the $14,545.45 straight-line year on the identical property. At a 24% bracket that is roughly $31,243.64 of Year-1 tax sheltered versus $3,490.91. Nothing about the property changed; only the classification did. That is the entire case for the study — and the recapture section below is the entire case for reading the fine print before celebrating it.

Bonus depreciation after the One Big Beautiful Bill: the acquisition date controls

The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) permanently restored 100% bonus depreciation — reversing the TCJA phase-down that had dropped it to 40% for 2025 and a scheduled 20% for 2026. The controlling detail is the acquisition date, not the placed-in-service date: property acquired after January 19, 2025 qualifies for the full 100%. Property acquired under a written binding contract signed before January 20, 2025 stays on the old phase-down — 40% if placed in service in 2025, 20% in 2026, zero after — even if it is placed in service today. Two planning consequences follow. A purchase contracted in early January 2025 and one contracted a week later can have completely different Year-1 math on identical buildings, so check the contract date before assuming 100%. And taxpayers may elect 40% instead of 100% for their first tax year ending after January 19, 2025 — occasionally useful for smoothing income, though most landlords take the full amount. Most competing depreciation content still shows the old phase-down schedule; the restored 100% is the current law.

The ADS election: 30 years, a smaller deduction, and no bonus at all

The Alternative Depreciation System stretches residential rental property to a 30-year straight-line life: on the $400,000 basis that is $400,000 ÷ 30 = $13,333.33 per year, or $1,212.12 less per year than the 27.5-year schedule — every year, for the life of the property. The second cost is sharper: property on the ADS is not eligible for bonus depreciation, so the cost-seg acceleration above is off the table entirely. Why would anyone elect it? Sometimes there is no choice — tax-exempt use property and property used predominantly outside the U.S. must use the ADS — and sometimes it is the price of another benefit: an electing real property trade or business under §163(j) escapes the business-interest deduction limit but must depreciate its residential property on the ADS. The election is a trade, not a trap, but it should be priced before it is made: on this property the trade is $1,212.12 a year of deduction plus the entire bonus, in exchange for uncapped interest deductibility. The depreciation calculator models the ADS side by side with the standard schedule so the cost is a number, not a surprise.

Section 179: real money, but mostly not for the building

Section 179 expensing was also raised by the same law — a $2.5 million limit with the phase-out beginning at $4 million of property placed in service (2025 figures) — but landlords should understand its limits before counting on it. Section 179 does not apply to the residential rental building itself: the structure is real property, and real property is generally outside §179 for residential rentals. Where §179 can apply in a rental context is the tangible personal property inside it — appliances, furniture, and similar items — the same components a cost segregation study identifies. In practice, 100% bonus depreciation now does the same job for those components without §179's taxable-income limitation and dollar caps, which is why §179 is a footnote in most rental depreciation planning rather than the headline. It matters more for nonresidential owners, where qualified improvement property can be §179-eligible. Either way, the building's $400,000 basis in our example is untouched by it.

Recapture: the 25% thread that ties depreciation to your exit

Every dollar of depreciation reduces your basis, and when you sell, that reduction comes back as taxable gain — recapture. For straight-line residential depreciation, the portion of gain attributable to depreciation taken is unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25% — higher than the usual 15–20% capital gains rate. Run the example forward: ten years of straight-line on the duplex is 10 × $14,545.45 = $145,454.55 of accumulated depreciation; sell at a sufficient gain and up to $145,454.55 is taxed at up to 25%, a federal recapture bill of up to $36,363.64. Cost segregation sharpens both edges: the 5/7/15-year components are Section 1245 property, recaptured at ordinary income rates rather than the 25% cap — bigger deductions now, more expensive recapture later. This is also where the tax cluster on this site connects: a 1031 exchange defers the recapture along with the rest of the gain instead of triggering it, which is why the 1031 exchange calculator and the 1031 exchange guide model recapture as a first-class input. Depreciation is a loan from the IRS, not a gift — the only questions are the rate it comes back at and whether an exchange defers it again. If the exit is a refinance instead of a sale, recapture is not triggered at all — but the lender will underwrite the property's cash flow after debt service, which is the math covered in the DSCR loan readiness guide.

State taxes, and the fine print

Federal depreciation is only half the return you will file. Many states decouple from federal bonus depreciation — requiring their own (often much slower) depreciation schedules, with add-backs and separate tracking for years — so the $130,181.82 federal Year-1 figure may have no state equivalent at all. Model your state separately, and keep both schedules: the federal and state bases of the same property diverge from Year 1 onward. The rest of the fine print matters as much. The figures in this guide are planning estimates built on the standard 20/10/70 cost-seg split, not an engineered cost segregation study — a real study is property-specific, costs money, and is what the IRS expects to see support the reclassification. Bonus treatment turns on acquisition dates and binding-contract rules that this guide summarizes rather than reproduces. This guide is educational only and is not personalized tax advice; confirm your land split, acquisition date, state treatment, and any ADS or §163(j) election with a CPA before you file.

Checklist Before You Decide

Split land from building before anything else — land never depreciates, and the $400,000 building basis is what every figure scales from
Place the property in service by December 31 to claim it in the current tax year — but a December placement earns only a half-month under the mid-month convention ($606.06, not $14,545.45)
Check the acquisition date before assuming 100% bonus: contracts signed before January 20, 2025 stay on the old 40%/20% phase-down
Price the ADS election before making it — $1,212.12 less per year on a $400,000 basis, and ADS property cannot take bonus depreciation at all
Model recapture before celebrating the deduction: accumulated depreciation is taxed back at up to 25% (Section 1250) or ordinary rates (Section 1245) on sale — or deferred with a 1031 exchange
Run both futures on the same property — straight-line vs cost-seg with 100% bonus — in the depreciation calculator and the cost segregation calculator before deciding
Confirm your state's treatment separately; many states do not follow federal bonus depreciation

FAQ

How much depreciation can I claim on a rental property each year?

Straight-line, it is your depreciable basis divided by 27.5 years for residential property (39 years for nonresidential). A $400,000 building basis gives $14,545.45 per year. First-year amounts are prorated by the mid-month convention, and cost segregation with bonus depreciation can raise Year 1 dramatically — $130,181.82 on the same $400,000 basis.

Can I depreciate the land my rental sits on?

No. Land is never depreciable — only the building and its components are. That is why every depreciation calculation starts with splitting the purchase price between land and building: on a $500,000 purchase with 20% allocated to land, the depreciable basis is $400,000.

Is 100% bonus depreciation really back — and for good?

Yes. The One Big Beautiful Bill Act (signed July 4, 2025) permanently restored 100% bonus depreciation. The catch is the date: it applies to property acquired after January 19, 2025. Property under a binding contract signed before January 20, 2025 stays on the old phase-down — 40% in 2025, 20% in 2026.

I bought my rental in December. Do I still get a full year of depreciation?

No — the mid-month convention treats December placements as placed in service mid-month, so you get half of one month. On a $400,000 basis that is $606.06 in Year 1 instead of $14,545.45; the full annual amount starts in Year 2. Buying by December 31 still starts the clock in the current tax year, which is worth doing — just don't budget a big first-year deduction from a December closing.

What is the difference between cost segregation and regular depreciation?

Regular depreciation treats the whole building as one 27.5-year asset. A cost segregation study reclassifies components — typically 20% into 5-year and 10% into 15-year property, leaving 70% as building — and with 100% bonus depreciation those components are deducted in Year 1. On a $400,000 basis: $14,545.45 straight-line versus $130,181.82 with segregation and bonus, on the same property.

What is the ADS election, and why would a landlord make it?

The Alternative Depreciation System stretches residential property to 30 years — $13,333.33 a year on a $400,000 basis, $1,212.12 less than the 27.5-year schedule — and ADS property cannot use bonus depreciation. It is mandatory in some cases (tax-exempt use property) and is the required trade for an electing real property trade or business escaping the §163(j) business-interest limit. Price it before electing it.

Can I use Section 179 on my rental house?

Not on the building itself — residential rental real property is not Section 179 property, despite the raised $2.5 million limit and $4 million phase-out threshold. Section 179 can cover tangible personal property used in the rental (appliances, furniture), but 100% bonus depreciation now handles those items without Section 179's taxable-income limit, so landlords rarely need it.

What happens to all this depreciation when I sell the property?

It is recaptured. Gain attributable to depreciation on the building is unrecaptured Section 1250 gain, taxed at up to 25% federally — ten years of straight-line on a $400,000 basis is $145,454.55 of accumulated depreciation, or up to $36,363.64 of recapture tax. Cost-seg components are Section 1245 property, recaptured at ordinary rates. A 1031 exchange defers the recapture rather than triggering it.

Does a $130,181.82 deduction save me $130,181.82 in tax?

No — a deduction shelters income at your marginal rate; it is not a credit. At a 24% federal bracket, $130,181.82 of Year-1 deduction is worth about $31,243.64 of tax not paid, versus about $3,490.91 for the $14,545.45 straight-line year. Still a large difference — just not dollar-for-dollar.

Can I choose to take less than 100% bonus depreciation?

In limited ways. Taxpayers may elect 40% instead of 100% for the first tax year ending after January 19, 2025, and you can elect out of bonus by asset class entirely — occasionally useful to smooth income across years or manage passive-loss limits. These elections are made on the return and are hard to undo, so they belong in a conversation with a CPA, not a default.