Depreciation is one of the more valuable — and more misunderstood — deductions available to landlords. Unlike most rental expenses, you don't pay cash for it directly; it's a deduction based on the idea that a building wears out over time, even while the land underneath it doesn't.
The core idea
You can't depreciate land — it doesn't wear out. You can depreciate the building itself, along with most capital improvements you make to it. For residential rental property, the standard recovery period is 27.5 years, using straight-line depreciation (an equal amount each year, rather than a declining balance).
Figuring out your depreciable basis
Your depreciable basis generally starts with your cost basis in the property — typically what you paid for it, plus certain closing costs, minus the value of the land. A rough (simplified) example:
- Purchase price: $350,000
- Estimated land value: $70,000
- Depreciable basis (building only): $280,000
$280,000 ÷ 27.5 years = $10,182 per year in straight-line depreciation, for as long as you own the property and it remains in service as a rental.
Splitting out land value isn't a guess you make up on your own — property tax assessments, appraisals, or a cost segregation study are the usual sources landlords use to support a land/building split.
When depreciation starts
Depreciation begins when the property is "placed in service" — available and ready for rent — not necessarily the day you closed on it. If you bought a property in March but spent two months on renovations before listing it, your placed-in-service date is typically when it was actually ready to rent, not the closing date.
Capital improvements get their own schedule
Depreciation isn't a single number that only changes when you buy or sell. Every capital improvement you make afterward — a new roof, a major renovation — gets its own depreciation schedule, starting on the date that improvement was placed in service, using its own recovery period (27.5 years for most structural improvements; shorter periods, like 5 or 15 years, for certain components like appliances or landscaping).
That means a property you've owned for 10 years might have three or four separate depreciation schedules running at once: the original building, plus each major improvement made along the way, each on its own clock.
Why this matters when you eventually sell
Depreciation reduces your taxable rental income each year you claim it — but it also reduces your cost basis in the property, which affects your gain when you sell. There's also a concept called depreciation recapture, which can tax the accumulated depreciation you claimed at a different rate than ordinary capital gains when you sell. This is a case where a conversation with a CPA before a sale, not after, tends to be worth the most.
Keeping it manageable
The mechanics above are why depreciation tracking tends to be the first thing that falls apart in a spreadsheet — a portfolio of even two or three properties, each with its own building basis and a handful of capital improvements, quickly turns into a dozen overlapping schedules to keep straight by hand.
This is exactly what Cazavera's depreciation tools are built to handle: set up a property's building basis once, log capital improvements as you make them, and see a live, combined depreciation figure — building plus every improvement — without maintaining a separate spreadsheet alongside your actual expense records.
This article is for general educational purposes only and does not constitute tax, legal, or accounting advice. Consult a licensed CPA or tax professional about your specific situation.