What is Straight Line Depreciation?
- Greg Pacioli
- Jun 30
- 3 min read
When you invest in real estate, understanding how your assets depreciate isn’t just an accounting formality... it’s a crucial strategy for managing your taxable income and boosting your cash flow. One of the simplest ways to depreciate rental properties is through a method known as straight line depreciation.
In this article, we’ll guide you through what straight line depreciation is, how to calculate it, and how it stacks up against other depreciation methods in the world of real estate investing.
What is Straight Line Depreciation?
Straight line depreciation allows you to spread the cost of a rental property (excluding the land value) evenly over its useful life. For residential rental properties, the IRS has set this period at 27.5 years, while for commercial properties, it’s 39 years.
This means you can deduct the same amount for depreciation each year, making it straightforward and easy to plan your finances around.
Why It Matters to Real Estate Investors
Depreciation gives investors the chance to write off a part of a property's cost each year, all without having to shell out any extra cash. The IRS typically uses straight line depreciation as the standard method for rental real estate, making it a core element in many lasting tax strategies.
Properly claiming depreciation:
Reduces your taxable rental income
Improves your annual cash flow
Helps offset maintenance, interest, and operating costs
Can defer taxes until you sell (or potentially eliminate them via 1031 exchange or stepped-up basis)
Straight Line Depreciation Formula
Key Terms:
Cost Basis: What you paid for the property, plus any capital improvements
Land Value: Land cannot be depreciated, so this is subtracted from the total
Useful Life: 27.5 years for residential; 39 years for commercial
How to Calculate Straight Line Depreciation for Real Estate
Determine the cost basis of the property (purchase price + capital improvements)
Subtract the value of the land
Divide the result by 27.5 (or 39) years
That’s it.
The result is your annual depreciation deduction.
Example:
You purchase a single-family rental for $500,000. An appraisal allocates $100,000 to land and $400,000 to the structure.
You can deduct $14,545 each year in depreciation for 27.5 years — even if the property appreciates in value.
💡 Tip: When it comes to figuring out how to divide land value from building value, make sure you’re using a trustworthy method. You might want to consider your county assessor’s ratio or even get an independent appraisal.
Other Depreciation Methods for Real Estate
While straight line depreciation is the IRS default, savvy investors often explore accelerated depreciation strategies for more front-loaded deductions.
Breaks out building components (e.g., appliances, carpet, HVAC) into shorter depreciation schedules (5, 7, 15 years).
Allows you to write off 100% in 2025 of certain short-life assets in year one when combined with cost segregation.
3. Section 179
Rarely used in real estate, but may apply to certain equipment or business-use assets.
Final Thoughts
Straight line depreciation is a foundational part of any real estate tax strategy, but it’s really just the tip of the iceberg.
If you’re only claiming straight-line deductions, you could be missing out on some significant savings.
Whether you’re overseeing a handful of single-family rentals or managing a vast portfolio, grasping how depreciation functions (and how to make the most of it) is essential for building wealth in a tax-efficient way through real estate.
Explore how cost segregation can bring on tens of thousands in year-one deductions.
You can use FindCostSeg to schedule a free consultation with a tax advisor to see what kind of depreciation benefit your property qualifies for.
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