MACRS Depreciation for Rental Property: The 2026 Landlord Guide

Rental property depreciation is one of the largest tax benefits landlords get, and it costs nothing out of pocket. Here is how the 27.5-year MACRS schedule works, what gets depreciated, and what the IRS requires.

The 27.5-year rule

Residential rental property uses a 27.5-year recovery period and straight-line depreciation under MACRS. That means you divide the depreciable basis of the building by 27.5 and deduct that amount each full year. The IRS requires the mid-month convention: in the year you place the property in service, you get depreciation for the half month of the month you started, plus each full month after. Sell it and the convention runs in reverse, so you only get a half month for the month of sale.

A concrete example. You buy a duplex for $400,000 and allocate $100,000 to the land. The land is never depreciable. The $300,000 building divided by 27.5 gives $10,909 of depreciation per full year. Placed in service in March, year one uses the March mid-month rate of 2.879 percent: $300,000 times 0.02879 = $8,637. Each full year after that is $10,909, and the schedule runs 28 tax years because of the half-year tail the mid-month convention creates.

Land versus building: the allocation that matters

Only improvements depreciate; land does not. How you split the purchase price between land and building directly sets your annual deduction, so the allocation needs a reasonable basis. Common approaches include the county property tax assessment ratio, a qualified appraisal, or the insurance replacement cost. The IRS can challenge an allocation that assigns an implausibly small value to land, so document your method and keep it consistent.

Closing costs need sorting too. Points, transfer taxes, title insurance, and recording fees generally get added to basis and depreciated with the building. Repairs made before the property is placed in service are usually capitalized into basis as well. Once the property is in service, the line between a deductible repair and a capitalized improvement follows the tangible property regulations: fixing a broken window is a repair, replacing the entire roof is an improvement with its own 27.5-year life.

The personal property inside: 5 and 7-year gold

Everything inside the rental that is not part of the building structure gets its own, much shorter life. Appliances, carpeting, and furniture are typically 5-year property. Office furniture and some fixtures are 7-year property. Land improvements like fences, driveways, and landscaping are 15-year property. Each of these qualifies for 100 percent bonus depreciation in 2026 for property acquired after January 19, 2025, which means a $12,000 appliance package can be fully deducted in year one instead of spread over five years.

This is where cost segregation earns its fee. A cost segregation study breaks the purchase price into 5, 7, and 15-year components instead of lumping everything into 27.5-year real property. On a $400,000 rental, a study might reclassify $40,000 to 5-year property; with 100 percent bonus depreciation that is $40,000 of first-year deduction instead of about $1,455 per year. Studies typically cost $3,000 to $7,000 for residential property, so the math favors larger purchases, but the 2026 bonus rate makes the payback fast.

Depreciation is not optional

Here is the trap many landlords miss: the IRS treats depreciation as allowed or allowable. When you sell, depreciation recapture is calculated on the depreciation you were entitled to claim, whether or not you actually claimed it. Skipping depreciation to keep things simple does not save you the recapture tax later; it just costs you the annual deductions you could have taken.

That makes claiming depreciation each year essentially mandatory for anyone who understands the rule. Unrecaptured Section 1250 gain on residential rental property is taxed at up to 25 percent when you sell, which is the price of the deductions you enjoyed along the way. A 1031 exchange can defer both the capital gain and the recapture, which is why depreciation-heavy landlords so often sell via exchange.

Placed in service: the date that starts the clock

Depreciation starts when the property is placed in service, meaning it is ready and available for its intended use, not when you buy it or when the first tenant moves in. A house bought in November, renovated through January, and listed for rent in February is placed in service in February. Expenses during the renovation period are generally capitalized, not deducted, until that date.

The same rule governs improvements. A new HVAC system installed in an existing rental is placed in service when the installation is complete and the system is operational. Keep invoices and completion dates for every capitalized improvement, because each one starts its own depreciation schedule and you will need the records at sale.

Record-keeping the IRS expects

For each rental asset, keep the purchase date, cost, placed-in-service date, recovery period, method, convention, and the depreciation claimed each year. Form 4562 reports current-year depreciation; the running totals live on your depreciation schedules. At sale, you will need the full history to compute adjusted basis and recapture. Good records turn a sale into arithmetic; missing records turn it into an argument.

Sources: IRS Publication 946 (How to Depreciate Property); IRS Publication 527 (Residential Rental Property). Data current as of October 2026. Not tax advice.

Frequently asked questions

How many years do you depreciate rental property?

Residential rental property is depreciated over 27.5 years using straight-line MACRS with the mid-month convention. Nonresidential real property uses 39 years. Components inside the rental, like appliances and carpet, use 5 or 7-year recovery periods.

Can you depreciate land?

No. Land is never depreciable because it does not wear out. Only the building and improvements depreciate, which is why the land-versus-building allocation on your purchase is so important.

What is cost segregation for rental property?

A cost segregation study identifies components of a property that qualify for shorter recovery periods (5, 7, or 15 years) instead of 27.5 years. In 2026 those components can generally take 100% bonus depreciation, pulling deductions into year one.

Do I have to claim depreciation on my rental?

Effectively yes. The IRS computes depreciation recapture at sale based on depreciation allowed or allowable, meaning you owe the recapture tax whether or not you claimed the annual deductions.

When does rental depreciation start?

Depreciation begins when the property is placed in service: ready and available for rent. A property bought in November but not rentable until February starts depreciating in February.