Depreciation Schedules For Rental Property
One of the most important tax benefits available to owning rental property is depreciation. Depreciation allows you to deduct the cost of the building (but not the land) over time, usually over 27.5 years for residential real estate (per IRS rules under IRC §168).
Unlike repairs or maintenance, which are deductible in the year you pay them, improvements and the original cost of the building are deducted gradually over many years. This deduction helps reduce your taxable rental income each year.
Why We Need Your Depreciation Schedule
When preparing your return, we need to know the exact amounts of depreciation that have already been taken in prior years. This ensures that:
What to Provide
Please provide a copy of the full Depreciation Schedule for each rental property.
We need the detailed schedule, which shows:
Below is an example of the type of document we’re looking for:
Unlike repairs or maintenance, which are deductible in the year you pay them, improvements and the original cost of the building are deducted gradually over many years. This deduction helps reduce your taxable rental income each year.
Why We Need Your Depreciation Schedule
When preparing your return, we need to know the exact amounts of depreciation that have already been taken in prior years. This ensures that:
- Your deductions are correct for the current year.
- We properly account for the split between land (not depreciable) and building (depreciable).
- We can track depreciation accurately for when you eventually sell the property (important for calculating “depreciation recapture”).
What to Provide
Please provide a copy of the full Depreciation Schedule for each rental property.
We need the detailed schedule, which shows:
- The original cost of the property.
- The portion allocated to land and to building/improvements.
- The method and life used (e.g., 27.5 years straight-line for residential property).
- Prior year depreciation taken.
- Current year depreciation deduction.
Below is an example of the type of document we’re looking for:
Many clients mistakenly send us IRS Form 4562 (example below). While that form shows total depreciation claimed in a year, it does not provide the details we need.
Where to Find The Depreciation Schedule
This schedule is typically only included in the tax return for the year the rental was first placed into service, or in any year where a new depreciable asset was added (for example, a kitchen renovation or new roof). It may not appear in your most recent tax return.
You may need to:
- Ask your prior tax preparer or CPA for a copy, or
- Download it from your consumer tax software (TurboTax, H&R Block, etc.), if you self-prepared in the past.
