27.5-Year Residential Depreciation: How the Math Works

By Tom, CPA · Updated October 27, 2026

Part of: Rental Property Taxes

TL;DR: Residential rental buildings are depreciated straight-line over 27.5 years with the mid-month convention, which treats the property as placed in service halfway through the month. A full year is 3.636% of building basis; the first and last years are partial and depend on the month you start.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Your tenant pays the mortgage and the IRS pays for the roof, in 330 roughly equal monthly installments, starting in the middle of a month, for reasons that made sense to someone in 1986.

The 27.5-year number comes from the Modified Accelerated Cost Recovery System (MACRS). Under the General Depreciation System, residential rental property uses a 27.5-year recovery period, the straight-line method and the mid-month convention (IRS Publication 946). This guide explains each piece, gives the first-year rates for every month, and shows what happens when the schedule runs out. Frugal Fran loves this topic because it is the only expense that never requires a receipt after year one.

CPA Warning Label: Depreciation starts when the property is ready and available for rent, not when the first tenant moves in and not when you closed. Picking the wrong month is small; skipping the year entirely is not.

Why 27.5 years

Congress set recovery periods by property class in the Tax Reform Act of 1986. Residential rental property got 27.5 years; nonresidential real property now gets 39. Neither number is a prediction of how long a building lasts. Plenty of 100-year-old brownstones are still collecting rent, and plenty of new builds need a roof in year 20. It is simply the statutory period.

"Residential rental property" under Pub. 946 means a building if 80% or more of its gross rental income for the year comes from dwelling units. A dwelling unit is a house or apartment used for living accommodations, but not a unit in a hotel, motel or other establishment where more than half the units are used on a transient basis. Mixed-use buildings with a large commercial share may fall into 39-year property instead.

Under the Alternative Depreciation System (ADS), required in some cases such as electing real property trades or businesses that opt out of the business interest limitation, residential rental property placed in service after 2017 uses 30 years instead of 27.5.

Depreciation only applies to the building and improvements. Land is never depreciated, so the first step is always the land vs. building allocation.

Mid-month convention example

The mid-month convention treats property as placed in service, or disposed of, at the midpoint of the month. So a building placed in service on March 1 or March 31 gets the same first-year deduction: 9.5 months of depreciation (half of March plus April through December).

Illustration: A building with $275,000 of depreciable basis placed in service in March.

• Annual straight-line amount: $275,000 / 27.5 = $10,000.
• Year 1: 9.5 months / 12 x $10,000 = $7,917. Pub. 946 Table A-6 gives 2.879%, or $7,917.
• Years 2 through 27: $10,000 per year, about 3.636% (the table alternates 3.636% and 3.637% to absorb rounding).
• Year 28: whatever remains to reach $275,000, about 2.5 months' worth in this case, plus or minus rounding (Table A-6 shows a year 29 sliver for late-year starts).

The total is always the full basis, just spread over 28 or 29 calendar years.

Placed in service date

Pub. 527 says you can begin depreciating rental property when it is placed in service, meaning ready and available for rent. Examples:

• Closed on June 10, painted and listed on July 5, first tenant August 1: placed in service in July.
• Converted your home to a rental: placed in service when you moved out and made it available. The basis is the lower of your adjusted basis or the fair market value on that date.
• Major renovation before listing: the building is placed in service when the renovation is complete and it is listed, and renovation costs are added to basis.

Expenses during a vacancy after it was available are still deductible. Costs before the property was ever available for rent are generally start-up or capital costs. See vacant rental deductions.

Annual table by month

First-year rates from Pub. 946 Table A-6 (residential rental property, mid-month convention, straight-line, 27.5 years), with the dollar amount for $275,000 of basis:

From year 2 on, every month uses about 3.636% (roughly $10,000 a year on $275,000). Improvements you make later, such as a new roof, start their own 27.5-year schedule from their own placed-in-service month. Appliances, carpet and furniture are generally 5-year property with different tables; land improvements are 15-year.

A December start gets only 0.152%, which is why "close by year end for the write-off" is mostly a myth for the building itself. The big first-year deductions come from cost segregation and bonus depreciation on shorter-lived components, not the 27.5-year structure. See bonus depreciation for rentals.

Keeping a depreciation schedule

Every rental needs a running depreciation schedule, one line per asset. Tax software usually builds it, but it is worth understanding, because the schedule is the evidence of basis when you sell, often decades later.

Illustration: For the roof above, the first-year rate for June is 1.970%, so 2031 depreciation is $22,000 x 1.970% = $433, then about $800 a year after. The roof's schedule runs to roughly 2058, long after the original building is fully depreciated around 2053. If the old roof was a separately depreciated component, a partial disposition election can let you write off its remaining basis when it is replaced, instead of depreciating a roof you no longer own.

Keep the schedule with the closing statement in a permanent file. Frugal Fran keeps a PDF in the cloud and a printout in the fire safe, because she has met tax software migrations before.

What happens after 27.5 years

Once basis is fully recovered, depreciation stops. The property keeps generating rent, but the shelter is gone, so taxable income jumps. This is the "depreciation cliff" long-term landlords notice around year 28.

• Later improvements keep depreciating on their own schedules.
• Selling: the full depreciation taken (or allowable) reduces basis. Gain attributable to straight-line building depreciation is unrecaptured section 1250 gain, taxed at a maximum 25% (Pub. 544).
• 1031 exchange: the replacement property generally carries over the old basis for the exchanged portion and continues the old schedule, with any additional basis depreciated as new property.
• Death: heirs generally receive a basis equal to fair market value at death and start a fresh 27.5-year schedule.

Illustration: A landlord bought a rental in 1997 for $150,000 with $120,000 allocated to the building. By 2025, the building is fully depreciated, and $120,000 of depreciation has been taken. Selling in 2026 for $450,000 (ignoring selling costs) means adjusted basis is $30,000 (the land), gain is $420,000, of which $120,000 is unrecaptured 1250 gain taxed at up to 25% and $300,000 is long-term capital gain.

Partial years, sales and mistakes

• Selling mid-year. The mid-month convention applies to dispositions too. Sell in October and you get 9.5 months of depreciation for that year.
• Missed depreciation. If you failed to claim depreciation for two or more years, the fix is typically a change in accounting method on Form 3115 with a catch-up adjustment, not amended returns.
• Personal-use portion. Only the rental share of a mixed-use building is depreciated.
• State differences. Most states follow federal 27.5-year straight-line for buildings, but some decouple from bonus depreciation on components.