Rental Property Depreciation and Schedule E Basics
Updated September 30, 2026
What Schedule E is for
If you own a house, condo, or duplex and rent it out, you report the rent you collect and the costs of owning it on Schedule E, which attaches to your Form 1040. The IRS says real estate rentals are reported there. The main exception is when you give your renters significant services, like maid service. Then the activity moves to Schedule C.
Schedule E is where three things meet: the rent you received, the expenses you paid, and depreciation. Most first-time landlords understand the first two. Depreciation is the one that gets skipped.
What depreciation actually means
A rental building wears out over time. The tax rules let you spread its cost across many years instead of deducting it all in the year you buy. That yearly slice is your depreciation deduction.
It is a paper deduction. You do not write a check for it. But it lowers the taxable profit on your rental, so it matters even in a year when the property barely breaks even.
Depreciation starts when the property is placed in service, which the IRS describes as ready and available for its use as a rental. It stops when you have fully recovered your cost or when you take the property out of rental service.
Here is a simple way to picture it. Say the building portion of a rental cost a round number, and you spread that cost evenly over its recovery period. Each year you take the same slice as a deduction, and each year the property's tax basis goes down by that slice. When you later sell, the lower basis is part of how the gain is figured, which is one more reason to keep each year's numbers.
A real preparer reviews and signs your return. You see the written quote before we start.
The 27.5 year rule for homes you rent out
Under the general system the IRS publishes in Publication 527, a residential rental building is depreciated over 27.5 years. The method is straight line with a mid-month convention. In plain words, you deduct roughly the same amount each year, and the first and last years are prorated by the month the property went into service.
Your preparer works from your numbers to set this up. What you need to bring is the purchase price, the closing paperwork, and the date the unit was ready to rent.
Why land is left out
The IRS is direct on this point. You cannot depreciate land, because land does not wear out, become obsolete, or get used up. When you buy a rental, the purchase price covers both the building and the lot under it. Only the building part can be depreciated.
That means you need a split between land and building. Common places to find one are the county property appraiser's assessment, the closing documents, or an appraisal. Your preparer can talk through which one fits your situation.
Repairs versus improvements
This is where many landlords guess wrong. According to Publication 527, an expense is an improvement if it results in a betterment to the property, restores it, or adapts it to a new use. Improvements are capitalized and depreciated over time. Repairs that just keep the property in working order are deducted in the year you pay for them.
- Fixing a leaky faucet or patching drywall usually sits on the repair side.
- Replacing a whole roof or adding a room usually sits on the improvement side.
- When a job could go either way, keep the invoice and a note about what was done and why.
The IRS tells landlords to separate the costs of repairs and improvements and keep accurate records, because you need improvement costs when you sell or depreciate.
A good habit is a running list titled "work done on the property." Each time you pay a contractor, add a line with the date, the amount, and one sentence about what changed. At year end, you and your preparer sort the list into repairs and improvements in minutes instead of digging through email. If you did some of the work yourself, keep the receipts for materials.
Records to keep for every rental
Good records turn a stressful return into a routine one. Plan to keep these for each property:
- The closing statement from the purchase, and the date you started renting.
- The land and building value split you used.
- Every invoice for work done, labeled repair or improvement.
- Rent received by month, with tenant names and dates.
- Insurance, property tax, mortgage interest, and management fees.
- Last year's return, so the depreciation carries forward correctly.
A simple spreadsheet or a monthly bookkeeping routine does the job. If you would rather hand that off, take a look at our bookkeeping service, starting at $300 a month.
One more tip. If you own more than one rental, keep a separate folder and a separate list for each property. Schedule E reports each property on its own, so mixing them makes the return harder to prepare and harder to check later.
How we handle rentals
Rentals are an add-on to your return. Our rental (Schedule E) add-on starts at $125 for your first property and $60 for each extra property. The final fee is set in a written quote, plus e-file and processing fees. You can see the range on the pricing page or build an estimate with the quote calculator.
For a wider look at what landlords deduct, read our rental property tax guide.
We prepare returns only. We are not a CPA firm, and we do not give legal advice. If you are unsure whether a repair is really an improvement, we prepare it the way your records support and flag it for you.
FAQ
Can I depreciate the land my rental sits on?
No. The IRS says land cannot be depreciated because it does not wear out or get used up. Only the building and certain improvements count. You need to split the purchase price between land and building.
What if I forgot to claim depreciation in past years?
Do not just skip it this year and hope it evens out. Missing years can matter later, including when you sell. Bring your old returns so your preparer can see what was claimed and talk through your options.
Do I depreciate a rental I only started renting this year?
Yes, from the date the property was ready and available to rent. The first year is prorated. Bring the date you first listed it as available and the purchase closing papers.
Is a new water heater a repair or an improvement?
A replacement that restores or upgrades a major part of the property is usually treated as an improvement and depreciated. Small fixes that just keep things running are repairs. Keep the invoice either way so the choice is backed up.
Sources
Keep reading
- Claimed as a Dependent: Can You Still File Your Own Return
- Does Filing an Amended Return Trigger an Audit
- Filing Taxes for a Deceased Parent: The Real Steps
Serving Longwood, Seminole County and clients in all 50 states remotely. See where we work.
General information, not tax advice for your specific situation. Rules can change, and a human preparer reviews your facts before any return is filed. Zero Fuss Taxes is a PTIN-holding tax preparation firm. We are not a CPA firm, enrolled agents or attorneys.