How does depreciation work on a rental property?
Short answer: Residential rental buildings are depreciated over 27.5 years. Depreciation lowers tax each year but is partly taxed back when you sell.
You can deduct the cost of a residential rental building, not the land, over 27.5 years. Improvements are depreciated on their own schedules.
Depreciation reduces your taxable rental income each year. When you sell, the depreciation you took (or were allowed to take) is taxed as unrecaptured section 1250 gain at a federal rate of up to 25%.
Depreciation that was never claimed still reduces your basis, so missing it costs you twice. If prior returns skipped depreciation, it can often be caught up with an accounting method change instead of amending every year.
General information from Davis Schuler & Associates, LLC, not advice for your situation. Tax rules and thresholds change; confirm the current rules before acting.
Want an Enrolled Agent to look at your situation?
A short call with an Enrolled Agent. No cost, no obligation.