Depreciation for House: 2026 Tax Strategies for Real Estate Investors
For the 2026 tax year, depreciation for house properties remains one of the most valuable tax deductions available to real estate investors. Understanding how to maximize rental property depreciation, use cost segregation studies, and leverage bonus depreciation can save thousands annually. This comprehensive guide will walk you through core concepts, calculations, and advanced strategies for optimizing your rental property tax situation.
Table of Contents
- Key Takeaways
- What Is Depreciation for House Properties?
- How Do You Calculate Depreciation for Rental Homes?
- How Does Cost Segregation Accelerate Deductions?
- What Is Bonus Depreciation in 2026?
- What Are the Tax Effects of Depreciation Recapture?
- Frequently Asked Questions
Key Takeaways
- Rental property depreciation for homes uses a 27.5-year MACRS schedule in 2026.
- You must separate land from building value. Only the building and qualifying improvements depreciate.
- Bonus depreciation is 40% in 2026; cost segregation studies can increase your deductions.
- Depreciation deductions lower your taxable income but are subject to recapture taxes when selling.
What Is Depreciation for House Properties?
Depreciation is a non-cash tax deduction that accounts for the normal wear and tear of rental property structures. For residential rentals, you spread your cost basis (except land) over 27.5 years using the Modified Accelerated Cost Recovery System (MACRS). Depreciation lets you deduct a portion of your basis each year, lowering your rental property’s taxable income.
How Do You Calculate Depreciation for Rental Homes?
To figure your annual depreciation deduction:
- Determine your original basis: usually property purchase price plus certain closing costs.
- Subtract the land value using property tax assessments or an appraisal; land is not depreciable.
- Divide the depreciable basis by 27.5 to get your annual deduction.
| Example | Amount |
|---|---|
| Purchase Price | $400,000 |
| Land Value (from tax records) | $60,000 |
| Depreciable Basis | $340,000 |
| Annual Depreciation | $12,364 |
You may claim this deduction each year until your cost basis is fully depreciated or you sell the property.
How Does Cost Segregation Accelerate Deductions?
Cost segregation is an accounting strategy that breaks out certain building components—such as appliances, fixtures, and outdoor improvements—so they can be depreciated over faster schedules (5, 7, or 15 years vs. 27.5 years for the structure). This accelerates tax deductions into the early years of ownership.
A professional cost segregation study usually pays for itself on properties worth $500,000 or more, generating substantial first-year deductions. Investors in Washington (and other high-tax states) benefit greatly. Try the Small Business Tax Calculator for Redmond to estimate your potential savings.
What Is Bonus Depreciation in 2026?
Bonus depreciation lets you immediately expense a percentage of qualifying property in the year placed in service. In 2026, the bonus depreciation rate is 40% (down from 60% in 2025). Only items with a useful life of 20 years or less (like appliances or landscaping) qualify, which is why cost segregation is so valuable.
| Year | Bonus Depreciation Rate |
|---|---|
| 2024 | 60% |
| 2025 | 60% |
| 2026 | 40% |
| 2027 | 20% |
| 2028 | 0% |
What Are the Tax Effects of Depreciation Recapture?
When you sell, accumulated depreciation is “recaptured” and taxed at a maximum 25% rate (Section 1250 recapture). The remaining gain is taxed at the usual long-term capital gains rate. Investors can defer this tax via 1031 exchanges. Consult a tax strategist for optimal planning, especially if you own multiple properties.
Frequently Asked Questions
Can I depreciate land?
No. Land is never depreciable. Only the building, improvements, and certain personal property qualify.
What if my rental becomes a personal home?
You must stop claiming depreciation during periods of personal use. You may not retroactively claim for personally-used years.
Can depreciation losses offset my salary?
Rental losses are generally “passive”—they offset passive income first. However, if you qualify as a real estate professional, those losses may offset all income types, including wages.
This information is current as of 2/11/2026. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.
Related Resources
Last updated: February 2026
