THE KEY TAKEAWAYS
- Land and depreciable property need separate treatment.
- The ready-and-available date matters for depreciation.
- Keep a continuing asset schedule, including improvements.
Establish basis before calculating a deduction
Basis generally begins with the property’s cost, including qualifying acquisition costs, and changes with events such as improvements and depreciation. Financing a purchase does not mean that only your down payment counts. Land is not depreciable, so a combined purchase needs a supportable allocation between land and depreciable property.
Gather the settlement statement, purchase agreement, valuation information, and invoices for acquisition-related work. Ask your preparer to explain the land allocation and which closing costs were included. Save that explanation with the original documents. An unsupported percentage copied from another property is a weak starting point for a schedule you may use for decades.
Sources: IRS Topic 703: Basis of assets · IRS Topic 704: Depreciation
Identify when the property was placed in service
For a rental, depreciation generally starts when the property is ready and available for rent. The first tenant’s move-in date may be later. Buying a building or paying a contractor, on its own, does not establish that the rental is ready for its intended use.
Create a dated timeline from acquisition to availability: work completed, any required approvals, photographs, listing publication, and the first lease. If the unit was still undergoing work that prevented occupancy, record that fact. When the timing falls near year end, this timeline is especially useful because a few days can put the start of depreciation in a different tax year.
Apply the correct recovery period and convention
Under the usual General Depreciation System, residential rental buildings generally use a 27.5-year recovery period, straight-line depreciation, and the mid-month convention. Different assets can have different classifications. Alternative Depreciation System requirements or elections can change the applicable treatment; the familiar residential building rule is not universal.
Have the schedule identify each asset, its cost basis, service date, method, recovery period, and accumulated depreciation. Keep appliances, furniture, and building improvements identifiable even when purchased together. The purpose is to preserve the information needed for a classification review, rather than assume every item belongs on the building’s line.
Review former homes and other special acquisitions
When personal-use property becomes rental property, its depreciation basis is generally the lower of adjusted basis or fair market value at conversion, with land excluded. Property acquired by gift, inheritance, or exchange can follow different basis rules. The value shown in an online real estate listing does not resolve those questions.
For a former home, collect your original purchase documents and the history of improvements made while you lived there. Preserve evidence of value at conversion and identify the conversion date. Tell your preparer about prior depreciation, casualty adjustments, gifts, ownership changes, or exchanges. Reconstructing those facts early is easier than trying to recreate them when the property is sold.
Sources: IRS Publication 551: Basis of Assets
Evaluate accelerated deductions in context
Bonus depreciation and section 179 apply only when their eligibility rules are met. Current law includes acquisition and service-date distinctions, so an old online percentage may be misleading. A residential rental building does not automatically qualify for the accelerated treatment available to certain shorter-lived assets. Confirm the asset, tax year, dates, elections, and any loss limitations together.
Keep your full depreciation schedules with each filed return. Before a sale, refinance review, or change in use, provide the complete history. Depreciation affects adjusted basis, including allowable depreciation that was not claimed, so skipping the deduction is not a simple way to avoid its later tax consequences. Missed depreciation deserves a separate correction review.
Sources: IRS Topic 704: Depreciation · IRS Topic 703: Basis of assets · IRS Instructions for Form 4562 · IRS Publication 551: Basis of Assets
MAKE IT PRACTICAL
Example: the full-year building calculation
Assume a qualifying residential rental building has $275,000 of depreciable basis after land is excluded and uses the usual 27.5-year method. A full year’s straight-line depreciation is $10,000. That figure is not automatically the first-year deduction: the mid-month convention adjusts the start year. This simplified example excludes separate assets, alternative methods, and loss limitations.
How does this apply to your rentals?
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Talk to a tax proGeneral U.S. federal tax education, reviewed September 10, 2026. IRS publications and forms may describe a specific tax year. Confirm the rules and forms for the year you are filing; your facts and state rules may change the result.