You deduct the cost of a residential rental building, not the land, over 27.5 years using the straight-line method. A cost segregation study breaks the property into shorter-lived parts, such as appliances, flooring and site improvements, so more of the deduction lands in the early years. When you sell, the depreciation you took (or could have taken) is generally taxed back through depreciation recapture.
- Residential rental buildings are depreciated over 27.5 years; commercial buildings over 39.
- Land is never depreciable, so the purchase price must be split between land and building.
- Cost segregation moves parts of a property into 5-, 7- and 15-year classes that can qualify for bonus depreciation.
- Depreciation you were entitled to take reduces your basis whether or not you claimed it.
How Long Is Rental Property Depreciated?
- Residential rental buildings are depreciated over 27.5 years.
- Commercial buildings are depreciated over 39 years.
- Land is never depreciated, so the purchase price has to be split between land and building. Your property tax assessment or an appraisal usually supports the split.
- Depreciation starts when the property is placed in service, meaning ready and available to rent, not when you buy it.
- Improvements you make later are depreciated separately, starting when each one is placed in service.
What Does Depreciation Look Like on a Real Rental?
You buy a single-family rental for $400,000, and $80,000 of that is land. The depreciable building is $320,000. Divided over 27.5 years, that's about $11,600 of depreciation each full year, a deduction that reduces taxable rental income without any cash leaving your account.
What Is a Cost Segregation Study?
A cost segregation study is an engineering-based analysis that identifies parts of a property with shorter recovery periods:
| Component | Typical recovery period |
|---|---|
| Appliances, carpeting, certain fixtures | 5 years |
| Some furniture and equipment | 7 years |
| Land improvements: paving, fencing, landscaping | 15 years |
| The building structure | 27.5 or 39 years |
Shorter-lived property can also qualify for bonus depreciation. Under current law, 100% bonus depreciation is available for qualifying property acquired after January 19, 2025, which means those components can be deducted in the first year.
Is a Cost Segregation Study Worth It?
It depends on three things:
- Can you use the deduction? A large first-year loss only helps if the passive activity rules let you use it, or if you have passive income to absorb it. Otherwise the loss carries forward.
- The size of the property. A study costs money, so the benefit has to clear the fee.
- How long you'll hold it. Accelerated depreciation is still subject to recapture when you sell, unless you defer it with a 1031 exchange.
For short-term rental owners who materially participate, cost segregation is often where the biggest first-year savings come from. See the short-term rental guide.
What If I Missed Depreciation in Past Years?
When you sell, your basis is reduced by depreciation that was "allowed or allowable," meaning depreciation you could have taken even if you didn't. If prior years were missed, a change in accounting method (Form 3115) can often catch up the missed amount in the current year without amending old returns.
Common Questions
Can I depreciate my rental if I didn't depreciate it in past years?
Usually yes. Missed depreciation can often be caught up through a change in accounting method on Form 3115, rather than amending prior returns.
Do I have to take depreciation?
Effectively yes. When you sell, your basis is reduced by the depreciation you were entitled to take, whether or not you claimed it. Skipping it means paying tax on recapture without ever getting the deduction.
Does cost segregation work on a single-family rental?
It can. The question is whether the extra first-year deduction is large enough, and usable enough, to justify the cost of the study.