How the 27.5-Year Residential Rental Depreciation Schedule Works

TL;DR: Residential rental buildings depreciate over 27.5 years under the Modified Accelerated Cost Recovery System (MACRS). Only the structure depreciates — land doesn't. Depreciation starts on the placed-in-service date and produces roughly equal annual deductions. Track each property's schedule separately because depreciation reduces your basis and triggers recapture at sale.

_Last reviewed: July 2026 · 6 min read_

You buy a rental house for $350,000 and the tax bill says the land is worth $75,000. That means you have $275,000 of building to depreciate — but you can't expense it all at once. The IRS uses a 27.5-year recovery period for residential rental real property, spreading the deduction across nearly three decades.

Okoniq Property Hub logs your purchase details and tracks depreciation basis year by year, so when it's time to sell or file Schedule E, the numbers are already organized.

What does "27.5 years" mean for a rental property?

The 27.5-year schedule is a statutory recovery period set by Congress for residential rental real property under MACRS. It means you divide the depreciable basis of the building — purchase price plus certain acquisition costs, minus the land value — by 27.5 to get your annual deduction.

If your depreciable basis is $275,000, your annual deduction is $10,000 in most years. The first and last years are prorated using the mid-month convention: the IRS assumes the property was placed in service at the midpoint of the month, so you get a half-month in the first month and deduct the balance in year 28.

The schedule applies only to the building. Land doesn't wear out, so it never depreciates. The land-versus-building split usually comes from the purchase closing statement, the county assessor's ratio, or an appraisal — and that allocation feeds into cost segregation studies if you later accelerate some components. Keep the allocation documentation; you'll need it when you sell and calculate depreciation recapture.

Why does depreciation start on the placed-in-service date, not the closing date?

The placed-in-service date is the day the property is ready and available for its intended use — accepting tenants. If you close on January 10 but spend February and March renovating before listing it on April 1, the placed-in-service date is April 1, not January 10.

This date matters because the mid-month convention proration depends on it. A property placed in service on April 1 gets 8.5 months of depreciation in year one (half of April, plus May through December). A property placed in service on December 15 gets 0.5 months. The IRS treats both dates as mid-month for the month they occurred.

Closing documents, the first lease, or a contractor's final invoice can all serve as evidence of the placed-in-service date. If you're also claiming startup costs, the placed-in-service date is the line between deductible startup expenses and ongoing operating costs.

How does straight-line MACRS work for residential real property?

MACRS residential rental property uses the straight-line method: divide the depreciable basis by 27.5, apply the mid-month convention in year one, and deduct the same amount every full year until the final partial year. There's no accelerated curve, no salvage value, and no adjustment for property value changes during the hold period.

The calculation ignores whether rents go up, whether you refinance, or whether the house appreciates. Depreciation is based on the original cost basis, adjusted only for capital improvements you capitalize during ownership. If you replace the roof and add $15,000 to basis, that addition gets its own placed-in-service date and depreciates over its own 27.5-year schedule, running in parallel with the original building.

Straight-line simplicity means less audit risk than older accelerated methods, but it also means you can't front-load deductions the way bonus depreciation or Section 179 allow for certain personal property. The trade-off: real property depreciation lasts longer, survives passive-loss limitations better, and integrates cleanly into 1031 exchanges if you defer the gain.

What happens to the 27.5-year schedule when you sell or convert the property?

Depreciation reduces your adjusted basis every year. If you started with a $275,000 building basis and claimed $10,000 annually for ten years, your adjusted basis in the building is now $175,000. That reduced basis increases your gain at sale — and every dollar of depreciation you took (or were allowed to take, even if you forgot to claim it) is subject to recapture at a maximum rate set by statute.

Recapture doesn't mean you lose the deduction. It means the IRS reclaims part of the tax benefit when you dispose of the property. The recaptured amount is taxed as ordinary income up to a cap, while any remaining gain may qualify for long-term capital gains treatment. If you sell and roll the proceeds into a 1031 exchange, you defer both the recapture and the capital gain — but the clock on the replacement property's 27.5-year schedule starts fresh on the new building's placed-in-service date.

Converting a rental to personal use stops depreciation on that date. If you later sell the former rental, you calculate gain or loss using the adjusted basis at the conversion date, and no further depreciation accrues during the personal-use period. Converting from personal use to rental — moving out of your home and listing it — starts a new placed-in-service date and a new 27.5-year schedule on the then-current basis, which may include a step-up if you inherited the property.

Why should landlords track each property's schedule separately?

Every rental property you own runs its own 27.5-year clock. If you buy three houses in three different years, you have three overlapping depreciation schedules, each with its own placed-in-service date, its own mid-month convention proration, and its own adjusted basis ledger.

Mixing them into a single number on Schedule E invites mistakes at sale time. When you dispose of one property, you need to know exactly how much depreciation reduced that property's basis, not an average across your portfolio. If you later refinance or take a cash-out loan secured by one building, the loan proceeds don't change the depreciation schedule — but a capital improvement funded by that loan does, and the improvement gets its own nested 27.5-year timeline within the same property.

Software and spreadsheets help, but most landlords find that logging each transaction by property address from day one — acquisition cost, improvements, depreciation claimed each year — prevents the April scramble. Tracking rental expenses for taxes and tracking depreciation are the same workflow: every dollar that increases or decreases basis belongs to a specific building, and that building's schedule runs until you sell, exchange, or convert it.

FAQ

Can I choose a different recovery period if I think the building will last longer or shorter than 27.5 years?

No — the recovery period is set by statute for the asset class, not by your estimate of the building's physical life. Residential rental real property uses 27.5 years under MACRS. You can't elect a shorter or longer period to match your hold strategy.

What if I forget to claim depreciation for a few years — can I catch up later?

You cannot amend prior returns solely to claim missed depreciation. Worse, the IRS treats depreciation as "allowed or allowable" — meaning you still reduce your basis and face recapture at sale even if you never claimed the deduction. Fix it going forward by claiming current-year depreciation correctly, and consult a CPA about a Section 481(a) adjustment if the unclaimed years are significant.

Does refinancing or paying off the mortgage change the depreciation schedule?

No — debt and depreciation are separate. Your annual deduction is based on the depreciable basis of the building, not the loan balance. Refinancing at a higher amount or paying off the mortgage early doesn't restart the 27.5-year clock or change the annual deduction.

If I convert my primary residence to a rental, do I get to depreciate the full purchase price?

No — you depreciate the building's basis on the conversion date, which is the lower of the adjusted basis (what you paid, plus improvements, minus any prior depreciation if it was a rental before) or the fair market value at conversion. Land still doesn't depreciate. The 27.5-year schedule starts on the placed-in-service date as a rental, not the original purchase date as a home.

Can I use cost segregation to shorten the 27.5-year schedule for parts of the building?

Yes — cost segregation reclassifies certain components (appliances, carpeting, specialized electrical) into 5-, 7-, or 15-year property, leaving only the true building structure on the 27.5-year schedule. This front-loads depreciation but requires an engineering study and separate tracking for each class. The 27.5-year schedule remains for the structural shell.

<div class="glass rounded-2xl p-5 mt-7 max-w-4xl border border-red-400/30 bg-red-500/5"> <div class="flex items-start gap-3"> <span class="text-2xl flex-shrink-0">⚠️</span> <div class="flex-1 min-w-0"> <p class="text-red-200 text-sm font-bold">Not tax advice</p> <p class="text-slate-300 text-xs mt-1 leading-relaxed"> This post assumes you own U.S. residential rental real property and file as an individual or passthrough entity. It does not account for your state's depreciation rules, your marginal tax bracket, recapture rates under current law, or legislative changes after July 2026. Tax rules change and depend on your specific situation. Talk to a licensed CPA before acting on anything here, and confirm current figures on IRS.gov. </p> </div> </div> </div>