Depreciation
A yearly deduction that lets investors write off the cost of a rental building over 27.5 years for residential, 39 for commercial. Land can't be depreciated.
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Part 1 of 4
Why a seller cares
Depreciation was a deduction every year you owned a rental, and selling brings it back as recapture. It also lowered your basis, so the gain is larger than the price minus what you paid.
Part 2 of 4
A simple example
You depreciated a $220,000 rental's building value of $180,000 over ten years, about $6,500 a year. At sale, $65,000 is recaptured.
| The stretch | What depreciation did |
|---|---|
| Each year of ownership | About $6,500 off taxable rental income |
| At sale | $65,000 recaptured at up to 25% |
| In a 1031 exchange | Deferred with the rest of the gain |
Depreciation is a deduction with a due date, and the sale is the due date.
Part 3 of 4
What people get wrong
That land depreciates. Only the building does, which is why the basis is split between the two.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
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