Rental Property Depreciation Explained for New Landlords

If you started renting out a property this year, depreciation is probably the tax idea that confuses you most. It sounds like something only accountants need to understand, yet in the US it can make a real difference to your rental profit every single year, and it comes back to matter again when you sell. Here is a plain-English explainer for new landlords, written for mid-December, while you still have time to get your records ready before tax season.

Depreciation is one of those topics where a little understanding goes a long way. You do not need to calculate everything by hand, and your tax software or accountant will do the heavy lifting. But you do need to know what it is, which records it depends on and what happens later, so you can make good decisions and keep the right paperwork from day one.

This article covers US rules first, because that is where depreciation plays the biggest role for landlords, then explains how the UK works differently. It is general information, not tax advice. Rental tax rules are detailed and depend on your situation, so please check with a qualified tax professional before you file.

What depreciation means for a rental property

A building does not last forever. Roofs, walls, wiring and plumbing all wear out over time. Depreciation is the tax system's way of recognizing that. Instead of letting you deduct the whole cost of a building in the year you buy it, the US tax rules let you spread the cost of the building over a set number of years and deduct a slice each year against your rental income.

Two things make rental depreciation different from many other deductions:

• It is a paper expense. You do not write a check for it each year. That is why it can turn a rental with positive cash flow into a smaller taxable profit.
• It is not a gift. When you sell, the depreciation you were allowed to take is generally taxed back, as explained below. Think of it as a timing benefit rather than free money.

If you have read about depreciation for business equipment, the core idea is the same, but rental buildings have their own recovery period and their own rules on sale, so it is worth treating them separately.

The US basics: 27.5 years, building only

For residential rental property in the US, the key facts are short:

• Recovery period: residential rental buildings are depreciated over 27.5 years.
• Method: MACRS straight line, which means roughly the same amount each full year.
• Land is not depreciable. Land does not wear out, so its value has to be separated from the building's value.
• Reporting: depreciation is reported on Form 4562.

Separating land from building

Because only the building can be depreciated, your first job is to split your purchase cost between land and building. People often use the property tax assessment, which may show separate values for land and improvements, or an appraisal. Whatever method you use, write down how you reached the split and keep the supporting document. It affects every year of depreciation that follows.

What goes into the building's basis

Your starting point, or cost basis, is generally what you paid plus purchase costs, then split between land and building. If you lived in the home before turning it into a rental, the rules for the starting figure can be different, which is a good reason to ask a professional in that situation.

Improvements vs repairs

Once you own a rental, you will spend money on it. How that spending is treated depends on whether it is an improvement or a repair.

• Improvements add value, prolong the property's life or adapt it to new uses. Examples include a new roof, a kitchen remodel or an addition. In the US, improvements are depreciated separately, starting when they are placed in service.
• Ordinary repairs and maintenance keep the property in normal working order, such as fixing a leak or repainting a room. These are generally treated as current expenses rather than added to the building's basis.

The line between the two is not always obvious, and there are detailed IRS rules on it. What you can control is the record. For every significant job, keep the invoice, the contract, any permit and before and after photos. That paperwork lets you or your accountant classify the work correctly, and it supports the depreciation schedule for each improvement for years to come.

What happens when you sell: depreciation recapture

This is the part many new landlords miss. When you sell a US rental property, the depreciation is "recaptured." In plain terms, the gain linked to the depreciation is taxed at up to 25%, as what the IRS calls unrecaptured Section 1250 gain.

The key detail is this: recapture applies whether or not you claimed the depreciation. If you forget to take it, you can end up paying tax on depreciation you never benefited from. That is why skipping depreciation is not a "safer" choice. It usually leaves you worse off.

Recapture is also why long-term records matter so much. When you sell, you or your accountant will need the original basis, the land and building split, every improvement and the depreciation taken each year. Keeping those records until the period of limitations expires for the year you sell is a sensible habit, and the IRS ties property records to that period.

How the UK treats rental property

If you let residential property in the UK, the picture is quite different, and much simpler on this point.

• No depreciation on the dwelling. Residential landlords cannot claim depreciation or capital allowances on the dwelling itself.
• Replacement of Domestic Items Relief. This covers the cost of replacing furnishings and appliances, such as beds, sofas, fridges or carpets, in a let residential property. Keep the receipt for each replacement and a note of the item it replaced.
• Furnished holiday lettings. The separate furnished holiday lettings regime was abolished from April 2025, so older guides describing special treatment for holiday lets may be out of date.

Records still matter in the UK. Improvement costs can affect your capital gains position when you eventually sell a let property, so keep invoices and photos for major works. Check gov.uk for current guidance, and speak to an accountant if you are unsure how a cost should be treated.

A simple depreciation schedule template

US landlords can keep one schedule per property, with one row for the building and one row for each improvement. Copy these columns into a spreadsheet. All amounts below are made-up examples.

Update the "depreciation to date" column each year after you file. When you eventually sell, that running total is exactly what you will need for recapture.

Your year-end depreciation routine

Mid-December is a good time to tidy things up before the tax season rush. Here is a short routine.

1. Gather your purchase documents for any rental you bought or started renting this year, including the closing statement.
2. Record your land and building split, with the document that supports it.
3. Note the date the property was ready and available to rent, as that drives when depreciation starts.
4. List this year's major works and sort them into likely improvements and repairs, with invoices and photos attached.
5. Update your schedule with new rows and running totals.
6. Book time with your accountant early if anything is unclear, before their calendar fills up.

Frequently asked questions

The bottom line

For US landlords, depreciation spreads the cost of the building, not the land, over 27.5 years, with improvements tracked separately and recapture waiting when you sell. For UK landlords, the dwelling cannot be depreciated, but replacing furnishings and appliances can get relief. In both places, good records make everything easier.

Use these last weeks of the year to set up a simple schedule and file the documents behind it. Your future self, and your accountant, will thank you when tax season and, one day, a sale come around.