Accumulated Depreciation

Depreciation as Percent of Income

Single Input Tax Benefits Tax & Depreciation

Depreciation

Annual straight-line depreciation deduction for the building.

Example Result

Sample Data

$11,200 /year

$933 /month

Based on a sample $385,000 property with $2,850/month rent, 20% down, 7% interest rate.

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Depreciation Formula

Monthly Depreciable Basis ÷ 27.5 Years ÷ 12 $933/mo

Annual Depreciable Basis ÷ 27.5 Years $11,200/yr

How This Value Changes Over Time

At Purchase / Year 1 (Purchase Price x (1 - Land Value %)) / 27.5

Over Time (Year 5) Same formula — depreciation is fixed each year (straight-line over 27.5 years)

What This Means

A sample property priced at $385,000 with $2,850/month rent has a depreciation of $11,200 at Purchase (Month 0). Depreciation is the #1 tax advantage of real estate. It is a "phantom expense" — you deduct it from income without actually spending any money. This can shelter rental income from taxes or even create paper losses.

Where This Value Comes From

Depreciation is not entered directly — it is calculated from Purchase Price and Land Value Percent. See the formula breakdown above and the detailed inputs below.

Inputs That Determine Depreciation

Purchase Price

The agreed-upon price to acquire the property.

Found on your purchase contract / hud-1

$385,000

Purchase

Land Value Percent

The percentage of property value attributed to the land (non-depreciable).

Found on your county assessor

20.00%

Purchase

Calculations That Use Depreciation

Gross Depreciation Return on Equity

Return Metrics

12.22%

Purchase

Cash Flow from Depreciation Return on Equity

Return Metrics

2.93%

Purchase

Depreciation as Percent of Income

Tax Benefits

34.47%

Purchase

Tax Savings From Depreciation

Tax Benefits

$2,688

Purchase

Cash Flow from Depreciation™

Accumulated Depreciation

Tax Benefits

$11,200

Purchase

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Why It Matters

Depreciation is the #1 tax advantage of real estate. It is a "phantom expense" — you deduct it from income without actually spending any money. This can shelter rental income from taxes or even create paper losses.

Detailed Explanation

Annual depreciation is the IRS-allowed deduction for the building's wear and tear. Residential rental properties are depreciated over 27.5 years using straight-line method. Land is not depreciable.