The short answer
Depreciation lets you deduct the cost of a rental or business building a little each year, 27.5 years for residential rentals and 39 for commercial. When you sell, the depreciation is generally taxed back, called recapture, at up to 25% for real estate. That applies even if you never claimed it.
Last reviewed: October 2026
This page explains how taxes and reporting work. It isn't a recommendation to buy, sell or hold any investment.
How depreciation works
- Only the building is depreciated. Land never is.
- It starts when the property is ready and available to rent, not when you bought it.
- Appliances, carpet and some improvements are depreciated faster, over 5 to 15 years.
- Depreciation lowers your basis, which increases your gain when you sell.
Recapture when you sell
- Real estate: the gain from depreciation you took, or could have taken, is taxed at up to 25%.
- Equipment and furnishings: recapture is taxed as ordinary income.
- The rest of the gain is taxed at regular capital gains rates.
"Allowed or allowable": the part that surprises people
The IRS reduces your basis by the depreciation you were entitled to, whether or not you claimed it. Skipping depreciation doesn't avoid recapture; it just means you missed the deduction. If you've missed it, there's usually a way to catch it up with Form 3115 instead of amending every year.
Official source: IRS Publication 527, Residential Rental Property.
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Disclaimer: This page is general information, not tax advice. Every situation is different, and tax rules change. Reading this page doesn't make you a client.