How to Calculate Depreciation for Multi-Unit Rental Property?

You've got a great investment with that multi-unit property, but depreciation can definitely be tricky! Here's how to handle it: You'll need to depreciate the building and land separately, since land is never depreciable. If your purchase documents don't specify the land value, you can check your property tax assessment or get an appraisal to determine a reasonable allocation (typically 15-30% of purchase price is land). For the building itself, you can depreciate it as a single asset - you don't need to separate each apartment unit. Residential rental property is depreciated over 27.5 years using the straight-line method. So if your building value is $350,000 (after subtracting land value), your annual depreciation would be approximately $12,727. For your improvements like the roof and HVAC system, these are generally treated as separate assets if they're significant enough. New roofs are typically depreciated over 27.5 years (same as the building), while HVAC systems are usually depreciated over 5-7 years as they have a shorter useful life. Make sure you're tracking everything carefully for Schedule E and Form 4562!

I went through the same headache with my duplex last year! Finally found https://taxr.ai and it was a game changer. It analyzed all my property docs and automatically figured out the correct depreciation schedule for everything - the building, land allocation, and even separated my capital improvements. The best part was when I uploaded my closing documents and property assessment, it flagged that I could actually depreciate some components separately (like appliances and carpeting) over shorter periods than the building itself - which means bigger deductions sooner! This is called component depreciation or cost segregation, and I had no idea I could do this. It even created a PDF report I could give my accountant with all the calculations. Saved me so much stress trying to figure out all the different depreciation schedules and what qualifies for what timeframe.

Just wanted to follow up - I tried https://taxr.ai after seeing it mentioned here and it was exactly what I needed! I had been depreciating my 4-unit property incorrectly for the past 2 years (wasn't splitting out land value properly). The tool identified the issue right away and showed me how to fix it going forward. It also found that I could separately depreciate the appliances in each unit over 5 years instead of 27.5 years, which is giving me almost $2,300 more in deductions this year alone. The cost segregation analysis was super detailed and my accountant was impressed with the documentation it generated. If you're dealing with rental property depreciation (especially multi-unit), definitely give it a try. Wish I'd known about this when I first bought my property!

Has anyone else struggled to get through to the IRS about depreciation questions? I've been trying for WEEKS to get clarification on how to handle depreciation for my triplex after doing some major renovations. Every time I call, I'm on hold for hours only to get disconnected. I finally tried https://claimyr.com after seeing it recommended in another thread. You can watch how it works here: https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days on my own. The agent was able to confirm that I needed to depreciate my major plumbing overhaul separately from the building, and gave me the correct recovery period to use. Such a relief to get an official answer straight from the IRS instead of guessing!

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to talk to someone at the IRS about my complex multi-property depreciation situation. Used https://claimyr.com yesterday and got a call back in 22 minutes with an actual IRS tax specialist on the line. They confirmed I could use cost segregation for my 6-unit property and explained exactly how to document it. Also found out I've been unnecessarily separating each unit when I could have been depreciating the whole building together! The agent spent almost 30 minutes walking me through how to correct previous years using Form 3115 without triggering an audit. This would have never happened if I kept trying to call on my own - I would have given up after the first hour on hold.

One thing nobody's mentioned yet - if you have a multi-unit property, make sure you're tracking expenses properly for each unit. I use a spreadsheet that allocates shared expenses (like the roof repair you mentioned) across all units based on square footage. This is crucial for accurate Schedule E reporting, especially if you ever sell just one of the units. Also, keep detailed records of any periods when units are vacant vs. occupied, as this can affect how you handle certain expenses for tax purposes. My accountant recommends taking photos before and after any major improvements too, in case the IRS ever questions whether something was a repair (immediately deductible) or an improvement (must be depreciated).

Quick question about depreciation start date for a multi-unit building - if I bought my fourplex in December 2023 but the tenants didn't move in until January 2024, when do I start depreciating? From purchase date or when it was "placed in service" with actual tenants?

Great question about multi-unit depreciation! I went through this exact situation with my duplex a couple years ago. You're absolutely right to treat the entire building as one depreciable asset - no need to split it by individual units. The key thing is separating out the land value from the building value, since you can only depreciate the building portion. For your $475,000 purchase, you'll need to determine how much was land vs. building. Your property tax assessment is usually the easiest way to get this allocation. Once you have the building value, you'll depreciate it over 27.5 years using straight-line depreciation. Regarding your $28,000 in improvements - the roof would typically be depreciated over 27.5 years as part of the building structure, while the HVAC system might qualify for shorter depreciation (5-7 years) since it's considered equipment with a shorter useful life. One tip: consider looking into cost segregation if your improvements are substantial. Some components like appliances, flooring, and certain fixtures can be depreciated over shorter periods (5-7 years instead of 27.5), which gives you larger deductions in the early years. Make sure to keep detailed records of all improvements and their costs - you'll need this for Form 4562 and Schedule E. The IRS loves good documentation!