What is the depreciation recovery period for residential rental property?

Under the Modified Accelerated Cost Recovery System (MACRS GDS), U.S. residential rental buildings are depreciated over 27.5 years using straight-line depreciation and the mid-month convention. For foreign residential rental properties located outside the United States, TCJA mandates Alternative Depreciation System (ADS) over 30 years (if placed in service after Dec 31, 2017). Land is non-depreciable.

How is cost basis determined when converting a personal residence to a rental property?

Under Treas. Reg. §1.167(g)-1, when personal property is converted to rental use, the depreciable basis for the building is the LOWER of: (1) your adjusted cost basis (purchase price + capital improvements - casualty losses), or (2) the Fair Market Value (FMV) of the building on the date converted. You cannot depreciate prior personal depreciation losses.

How do I distinguish between a deductible repair and a capital improvement on Schedule E?

Repairs that keep property in ordinary efficient operating condition are deducted immediately in Line 14. Improvements that result in a Betterment, Adaptation to new use, or Restoration (BAR tests under Treas. Reg. §1.263(a)-3) must be capitalized and depreciated. Taxpayers may elect the De Minimis Safe Harbor to deduct individual invoices up to $2,500.

Can rental real estate losses offset ordinary W-2 income?

Rental real estate is treated as a passive activity under IRC §469. However, active participants may qualify for the special allowance to deduct up to $25,000 of passive rental losses against non-passive income. This allowance phases out for taxpayers with Modified AGI between $100,000 and $150,000. Any unused losses are suspended and carry forward indefinitely.

Rental real estate · MACRS depreciation · Schedule E

Rental Property Schedule E & Depreciation Calculator

Organize your rental real estate income, deductions, and building depreciation in 10–15 minutes. Automatically applies MACRS 27.5-year GDS or foreign 30-year ADS, personal-to-rental conversion basis rules, and exports audit-ready Excel workpapers.

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01I purchased a rental propertyCalculate building basis and mid-month depreciation 02I converted my home to rentalApply Treas. Reg. §1.167(g)-1 lower-of-cost-or-FMV rule 03I rent out part of my dwellingAllocate direct vs shared expenses by square footage 04I have prior depreciation recordsTransfer existing Line 18 and complete Schedule E Part I

Quick guide

Four IRS principles every residential landlord should know.

Land is never depreciable

You can only depreciate the building and structural components. Total purchase cost must be allocated between land and building using local property tax assessments or independent appraisals.

Personal-to-rental conversion rule

Under Treas. Reg. §1.167(g)-1, if you lived in the home before renting, the depreciable basis is the LOWER of your adjusted cost basis or the fair market value on the date of conversion.

Repairs vs capital improvements

Routine repairs that keep property in efficient condition are expensed on Line 14. Projects that create a Betterment, Adaptation, or Restoration must be capitalized and depreciated over 27.5 years.

Passive loss rules & active participation

Rental losses are passive under IRC §469. If you actively participate and your MAGI is under $100,000, you may deduct up to $25,000 against ordinary income (phasing out between $100k–$150k).

Currency requirement: All amounts must be entered in USD. For foreign properties, convert foreign-currency rental income and operating expenses to USD using official IRS annual average exchange rates.

Free calculator

Prepare your Schedule E workpaper

Complete the 5 steps below. If this is a continuing rental with prior depreciation records, you will simply enter your current-year Line 18 amount without having to recompute historical basis.

Form 1040 Schedule E / MACRS

Property Information

Property physical address (optional)

Tax year *

Property location *

Property type *

First date available for rent under current ownership *

Used to determine whether this tax year is the first year placed in service.

Ownership percentage (%) *

Rental scope *

Did you stop renting or sell this property during the year? *

Building Basis & Depreciation

How was the property acquired? *

Acquisition date *

Use prior to rental *

Purchase price (USD) *

How is land value determined? *

Land value (USD) *

Pre-rental capital improvements (USD)

Basis reductions (casualty losses, subsidies) (USD)

Optional: Closing costs that increase basis

Legal & attorney fees (USD)

Recording fees (USD)

Title insurance (USD)

Survey fees (USD)

Transfer taxes (USD)

Seller costs paid by buyer (USD)

Total property value on estate return (USD) *

Land value included (USD) *

Received Schedule A (Form 8971)? *

Was property gifted to decedent within 1 year of death? *

Donor's adjusted total basis (USD) *

Donor's land basis (USD) *

Total FMV on date of gift (USD) *

Land FMV on date of gift (USD) *

Gift tax paid (USD)

Amount of gift for gift tax purposes (USD)

Transferor's property basis (USD) *

Transferor's land basis (USD) *

Depreciable building basis confirmed by CPA/EA (USD) *

Depreciation for other assets (appliances, HVAC, furniture) (USD, optional)

If you track separate 5-year appliances or 15-year land improvements on a Form 4562 schedule, add their current-year depreciation here.

Rental Days & Form 1099 Questions

Fair rental days (rented at market rate) *

Personal use days (personal or below-market) *

Enter days you or family used the rental unit. For whole rentals, usually 0.

Did you make payments requiring Form(s) 1099? *

If "Yes," did you or will you file required Form(s) 1099? *

Special situations: Farm rental or hotel-like guest services

Rent based on crops or livestock?

Did you provide substantial guest services (hotel-like)?

Daily maid cleaning during stay Breakfast or catered meals Airport or tour transportation Concierge or front desk operations

Rental Income

Amounts entered below represent: *

Total gross rents received (USD) *

Other rental income (parking, laundry, pet fees) (USD)

Other potential gross receipts

Advance rent received for future years (USD)

Expenses paid by tenant on your behalf (USD)

Forfeited security deposits retained (USD)

Rental Expenses

Amounts entered below represent: *

Enter full-year amounts in USD. For whole rentals, 100% is deducted. For partial rentals, common expenses are automatically allocated by rental percentage.

Repair vs Capital Improvement: Routine maintenance and patching are expensed on Line 14. Replacing a whole roof, HVAC system, or major renovation must be capitalized. Under the De Minimis Safe Harbor, separate invoices up to $2,500 may be expensed.

Common Expenses

More expense categories (travel, commissions, legal, utility split)

Optional: Standard mileage deduction for rental business driving

Use standard mileage rate? *

Schedule E Calculation Results

Statutory Guidance

Key IRS Schedule E and depreciation rules.

Residential Recovery: 27.5-Yr vs Foreign 30-Yr

U.S. residential properties use MACRS GDS 27.5-year straight-line with mid-month convention. Under TCJA, foreign residential rentals placed in service after 2017 use ADS 30-year straight-line depreciation.

Home-to-Rental: Lower of Cost or FMV

Under Treas. Reg. §1.167(g)-1, converting personal property to rental requires setting depreciable basis to the lower of adjusted basis or fair market value at conversion date to disallow personal loss deductions.

Tangible Property Regulations & Safe Harbors

Under Treas. Reg. §1.263(a)-1(f), landlords without audited financial statements can attach a statement electing the $2,500 De Minimis Safe Harbor to expense smaller invoices directly as repairs.

Passive Loss Limits (IRC §469)

Rental real estate is generally a passive activity. Active participants with MAGI under $100,000 can deduct up to $25,000 of rental losses against non-passive income (phasing out between $100k–$150k).

How is depreciation calculated for a partial-year rental?

Under the IRS mid-month convention, real property is treated as placed in service in the middle of the month regardless of the exact day. For example, a property placed in service on February 2 is treated as active for 10.5 months in Year 1.

Can I deduct mortgage principal or only mortgage interest?

Only the interest portion of your loan payment is deductible on Line 12. Principal repayments reduce loan liability and are never deductible as rental expenses. Escrow amounts for property taxes and insurance are deducted when paid by the lender.

How do I handle partial rental when living in the same building?

Expenses directly related to the rental space (e.g., painting the tenant's bedroom) are 100% deductible on Schedule E. Shared whole-house costs (utilities, whole-house insurance, property taxes) must be allocated strictly by rental square footage.

How does the exported Excel workpaper integrate with tax software?

The exported workbook matches official IRS Form 1040 Schedule E line numbers (Line 3 through Line 21). You or your CPA can enter the figures directly into Drake, UltraTax, ProConnect, Lacerte, or TurboTax.

Primary sources

Built around official IRS statutes and publications

IRS Schedule E (Form 1040) Instructions Supplemental Income and Loss guidance and line requirements IRS Publication 527 Residential Rental Property (Including Vacation Homes) IRS Publication 946 How To Depreciate Property (MACRS GDS & ADS tables)

Last reviewed: October 11, 2026 · Built for tax years 2020 through 2025.

Need professional assistance?

Complex cross-border rentals or multi-property portfolios.

Foreign exchange reporting, passive foreign investment companies (PFIC), multi-state apportionments, or Form 1040 filing with international disclosures.

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