Calculate residential and commercial property depreciation using straight-line and MACRS with cost segregation analysis.
The guide
This tool turns a purchase price into a year-by-year depreciation schedule under the IRS recovery rules: straight-line over 27.5 years for residential rentals and 39 years for commercial buildings, with the mid-month convention, plus the accelerated MACRS tables for components carved out by cost segregation. It is a calculator, not a tax opinion - the output is only as valid as two inputs: the land value you exclude (land never depreciates) and the placed-in-service date. The surprise is that depreciation is recaptured at sale, so it accelerates deductions rather than eliminating them.
A concrete input and expected output from the current implementation.
Input
Commercial purchase $1,000,000, land $150,000. Cost segregation: $100,000 to 5-year personal property (200% declining balance), $50,000 to 15-year land improvements (150% declining balance), remainder to the 39-year building. Placed in service in January.
Expected output
Year 1 depreciation: building $17,200.85 (11.5/12 of the $17,948.72 annual straight-line amount), 5-year property $20,000.00 (20% of $100,000), land improvements $2,500.00 (5% of $50,000). Total: $39,700.85. Without segregation the $850,000 building alone would produce $20,886.75, so the allocation front-loads $18,814.10 of extra deduction in year 1.
Each class follows its own IRS schedule: the mid-month convention gives the 39-year building 11.5 months of depreciation in its first year, while 5-year property opens at 20% and 15-year property at 5% under the half-year convention. The three schedules sum to the year-1 total.
Buildings depreciate straight-line: depreciable basis (purchase price minus land) divided by 27.5 years for residential rentals or 39 years for commercial property. The mid-month convention treats the property as placed in service at the midpoint of its month, so the first and last years get a half month plus whole months, never a full year. The day of the month you close does not change the schedule.
The tool runs a separate schedule for each component class: 5-year personal property at 200% declining balance, 15-year land improvements at 150% declining balance, and the building on straight-line. Under the half-year convention the first-year rates are 20% and 5%. Total deductions over all lives are capped at the depreciable basis, so segregation front-loads deductions rather than creating new ones - useful only if the deduction is worth more to you now than later.
No. Depreciation applies only to property held for business or rental use, so a primary residence is not depreciable. If part of a home is rented - a room or a basement unit - only the basis allocable to the rental portion qualifies, and you would enter that reduced basis, not the full purchase price.
Yes, effectively. Deductions reduce your basis, so more gain is taxable at sale. For the real estate itself, prior depreciation is recaptured as unrecaptured Section 1250 gain taxed at up to 25%; the personal-property components from a cost segregation study recapture at ordinary income rates. This tool shows deductions, not sale-year tax.
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Sent. Thank you.
