Rental Property Depreciation Tax Benefits Explained

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  <h3 class="font-bold text-blue-900 mb-2">Quick Answer</h3>
  <p class="text-gray-700">
    <strong>Depreciation</strong> allows you to deduct your property's cost (not land) over <strong>27.5 years</strong>,
    creating significant tax savings. On a $300,000 rental property (land value $60,000), depreciation is
    <strong>~$8,727/year</strong>, saving ~$2,400 in taxes for most investors. This is one of real estate's
    most powerful tax advantages.
  </p>
</div>

<h2 class="text-2xl font-bold text-gray-900 mb-4">What is Depreciation?</h2>

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  The IRS assumes buildings lose value over time and lets you deduct this "loss" as an expense, even though
  real estate typically appreciates. This creates <strong>paper losses</strong> that reduce your taxable income.
</p>

<h3 class="text-xl font-bold text-gray-800 mb-3">Depreciation Schedule</h3>
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  <li><strong>Residential Rental Property:</strong> 27.5 years</li>
  <li><strong>Commercial Property:</strong> 39 years</li>
  <li><strong>Land:</strong> Never depreciates (land doesn't wear out)</li>
</ul>

<h2 class="text-2xl font-bold text-gray-900 mb-4">How to Calculate Depreciation</h2>

<h3 class="text-xl font-bold text-gray-800 mb-3">Step 1: Determine Depreciable Basis</h3>
<p class="text-gray-700 mb-4">
  <code>Depreciable Basis = Purchase Price - Land Value + Closing Costs</code>
</p>

<h3 class="text-xl font-bold text-gray-800 mb-3">Step 2: Divide by 27.5 Years</h3>
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  <code>Annual Depreciation = Depreciable Basis ÷ 27.5</code>
</p>

<h3 class="text-xl font-bold text-gray-800 mb-3">Example Calculation</h3>
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  <ul class="text-sm text-gray-700">
    <li>Purchase Price: $300,000</li>
    <li>Land Value (per tax assessment): $60,000</li>
    <li>Closing Costs: $5,000</li>
    <li>Depreciable Basis: $300,000 - $60,000 + $5,000 = $245,000</li>
    <li>Annual Depreciation: $245,000 ÷ 27.5 = <strong>$8,909/year</strong></li>
  </ul>
</div>

<h2 class="text-2xl font-bold text-gray-900 mb-4">Tax Savings Example</h2>

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  <h3 class="font-bold text-green-900 mb-2">💰 Tax Savings in Action</h3>
  <p class="text-gray-700">
    Property generates $10,000 annual taxable income before depreciation. After $8,909 depreciation deduction,
    taxable income drops to $1,091. At 24% tax bracket, you save <strong>$2,138/year in taxes</strong>.
    In high-tax states, savings can exceed $4,000/year.
  </p>
</div>

<h2 class="text-2xl font-bold text-gray-900 mb-4">Bonus Depreciation Strategies</h2>

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  <li><strong>Cost Segregation:</strong> Accelerate depreciation on 5, 7, 15-year property (appliances, carpet, landscaping)</li>
  <li><strong>Bonus Depreciation:</strong> 60% first-year writeoff on qualified improvements (2026)</li>
  <li><strong>Section 179:</strong> Immediate expensing of certain business property</li>
</ul>

<h2 class="text-2xl font-bold text-gray-900 mb-4">Frequently Asked Questions</h2>

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    <summary class="font-semibold cursor-pointer">Do I have to pay back depreciation when I sell?</summary>
    <p class="mt-3 text-gray-700">
      Yes, depreciation recapture tax (25%) applies to accumulated depreciation when you sell. However,
      you benefited from tax deductions over many years. This is essentially an interest-free loan from
      the government that you repay upon sale.
    </p>
  </details>

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    <summary class="font-semibold cursor-pointer">Can I depreciate renovations?</summary>
    <p class="mt-3 text-gray-700">
      Yes! Improvements are depreciated separately. Kitchen remodel, new roof, HVAC each get their own
      depreciation schedule. Cost segregation can accelerate these deductions.
    </p>
  </details>

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    <summary class="font-semibold cursor-pointer">What if I have negative taxable income from depreciation?</summary>
    <p class="mt-3 text-gray-700">
      You can use up to $25,000 of rental losses against ordinary income if your MAGI is under $100,000.
      Above $150,000, rental losses are suspended and carried forward. Real estate professionals
      have unlimited loss deductions.
    </p>
  </details>
</div>

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  <h2 class="text-xl font-bold mb-3">Calculate After-Tax Returns</h2>
  <p class="text-gray-600 mb-4">Use our ROI calculator to see how depreciation affects your investment returns.</p>
  <a href="/" class="btn-primary inline-block">Calculate After-Tax ROI</a>
</div>