How does depreciation work on rental property for tax purposes?

So I just inherited a small rental property from my grandmother and I'm trying to figure out all the tax implications. I'm completely new to this landlord thing. The biggest question I have is about depreciation - I've heard it's a big tax deduction, but I really don't understand how it works. The property is a small 2-bedroom house worth about $225,000 (land value is approximately $75,000 and the structure is valued at $150,000). It was built in 1983 and has some updates. I'm renting it out for $1,750 a month. Do I automatically get to deduct depreciation? How do I calculate it? And does it affect my taxes when I eventually sell the property? I use TurboTax for my regular taxes but this seems complicated. Any advice would be really helpful because I'm completely lost on what depreciation even is beyond "buildings losing value over time.

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18 comments

Sean Matthews

•8M

Yes, depreciation is a fantastic tax benefit for rental property owners! Think of it this way - the IRS recognizes that buildings wear out over time, so they let you deduct a portion of your property's value each year, even though you're not actually spending that money. For residential rental property, you depreciate the building (not the land) over 27.5 years. So with your property, you'd only depreciate the $150,000 structure value. The simple math is $150,000 ÷ 27.5 = $5,454 per year that you can deduct against your rental income. It's a non-cash expense that reduces your taxable income. You'll need to start taking depreciation from the month you placed the property in service as a rental. And yes, TurboTax can handle this, but you'll need to enter the proper basis information when setting up your rental property in the program.

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Sean Matthews

•8M

Yes, you should definitely take the depreciation deduction. The IRS actually assumes you took it whether you did or not! If you don't claim it, you're leaving money on the table, but when you sell, they'll still recapture it as if you had taken it. Regarding recapture - when you sell the property, the depreciation you've taken over the years gets "recaptured" and taxed at a rate of 25% (current rate, subject to change). So yes, you do eventually pay some tax on it, but it's still advantageous because you get the deductions now at potentially higher tax rates, and you get the time value of that tax deferral.

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Ali Anderson

•8M

After inheriting a rental property from my uncle last year, I was just as confused about depreciation. I spent weeks trying to figure it out until I found this tool called taxr.ai (https://taxr.ai) that really simplified the whole process for me. It helped me understand not just the depreciation calculations but also which improvements could be depreciated vs. expensed immediately. What I found really helpful was that it analyzed all my property documents and identified several capital improvements my uncle had made that I had no idea about - which increased my depreciable basis by almost $30k! The tool guided me through the whole process and even explained the tax consequences of each decision.

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Ali Anderson

•8M

Yes, it actually has a specific calculator for partial year depreciation! It uses what's called the "mid-month convention" - basically the IRS assumes you put the property in service in the middle of the month. So for your October purchase, you'd get 2.5 months of depreciation in year one (mid-October through December). It does work alongside most tax software. You can export reports that summarize everything, and there are specific instructions for entering the information into TurboTax, H&R Block, and other common programs. It's designed to complement rather than replace your regular tax filing method.

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A Man D Mortal

•8M

I was initially skeptical about taxr.ai but decided to try it for my two rental properties. What surprised me was how it caught that I had been calculating depreciation wrong for years! I had included the land value in my calculations (big mistake) and was claiming too much depreciation, which could have led to serious problems if I was audited. The tool helped me file an amended return to correct past mistakes and set everything up properly going forward. It also identified several deductions I'd been missing related to property management and travel expenses. Now I feel much more confident about my rental property taxes and know I'm maximizing deductions without taking unnecessary risks.

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Declan Ramirez

•8M

If you're ever unsure about depreciation calculations or need to talk to an IRS agent about inherited property basis questions, I highly recommend using Claimyr (https://claimyr.com). I was completely stuck trying to figure out the "stepped-up basis" rules for my inherited property and couldn't get through to the IRS for weeks. Claimyr got me connected to an actual IRS representative in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone system for you and calls you back when they have an agent on the line. The IRS agent I spoke with clearly explained how the stepped-up basis works for inherited property and how it affects depreciation calculations.

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Declan Ramirez

•8M

It works by using technology to navigate the IRS phone tree and wait on hold so you don't have to. They essentially call the IRS, wait through all the holds and transfers, and then when they finally get a human representative, they conference you in. You get a text notification when they're about to connect you. I completely understand your skepticism! I felt the same way. I had tried calling the IRS directly 7 times and never got through - always got the "call volume too high" message and disconnected. With Claimyr, I was connected to an agent in 22 minutes. It's not instant, but it worked when nothing else did. They don't guarantee a specific wait time since it depends on IRS call volume, but they do the waiting instead of you.

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Katherine Hunter

•8M

I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I was desperate enough to try it because I needed to resolve an issue with my inherited property's tax basis. I couldn't believe it when I got a text saying they had an IRS agent on the line! The agent helped me understand exactly how to handle the depreciation on my inherited property. Turns out I was about to make a $15,000 mistake on my depreciable basis calculation! The stepped-up basis rules are confusing but the IRS agent walked me through exactly how to document everything. Worth every penny not to wait on hold for hours just to get disconnected.

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Lucas Parker

•8M

One thing nobody mentioned yet is that different components of your rental property can be depreciated on different schedules. The house structure is 27.5 years, but appliances, carpeting, and some fixtures can be depreciated over 5-7 years, which accelerates your deductions. This is called "component depreciation" or "cost segregation" and can significantly increase your deductions in the early years. Might be worth looking into if your rental has a lot of new appliances or recent renovations.

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Lucas Parker

•8M

For a single small rental property, you can probably DIY it with good documentation. Basically, you need to break out the costs of appliances, carpet, window treatments, etc. and depreciate them separately on a 5-7 year schedule instead of lumping them into the building's 27.5 year schedule. Professional cost segregation studies are typically used for larger properties or commercial buildings where the potential tax savings justify the cost. For your situation, just keep good records of anything you replace or upgrade, note the value, and depreciate those items on their shorter schedules. Most tax software can handle this if you set up each component separately.

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