The deduction you take
without spending anything
Depreciation turns part of the purchase price into an annual deduction. It is the reason a rental can produce cash and still show a tax loss.
Before you read on
- General information, not tax advice. Rules on passive losses, entity treatment and non-resident elections are involved and fact-specific.
- Take advice from a US CPA before the first rent is collected, not at the first filing deadline.
Step 1How the calculation works
Residential rental property is written off in equal parts over 27.5 years. Commercial property takes 39. Land is never depreciated.
| Line | Example | Note |
|---|---|---|
| Purchase price | $900,000 | Plus capitalised closing costs |
| Less land value | −$180,000 | Apportioned; the tax assessment's land-to-building ratio is the usual evidence |
| Depreciable basis | $720,000 | The building only |
| Divided by 27.5 years | ÷ 27.5 | Residential; 39 years for commercial |
| Annual deduction | $26,182 | Claimed every year it is available for let |
For an apartment, the land component is the unit's share of the land under the building. The apportionment should be documented — the county assessment is the simplest defensible source.
Against the worked yield example elsewhere in these guides, that $26,182 turns roughly $8,000 of positive cash flow into a taxable loss of about $18,000, while the cash is still in your account. That is the whole appeal, and it comes with a bill attached at the end.
Step 2What else is deductible each year
Common charges or maintenance, property taxes, insurance, management fees, letting fees, utilities you pay, repairs, cleaning, and the accountancy for the rental itself.
Interest is deductible; the principal portion of each payment is not. In the early years of a loan that distinction is worth a great deal, since most of the payment is interest.
Travel wholly for the property may be deductible, but a trip that combines a holiday with an inspection invites scrutiny. Contemporaneous records matter more than the rule.
Appliances, carpets and furniture are depreciated over five to seven years rather than 27.5, and some qualify for accelerated write-off. A cost segregation study formalises this on larger properties.
The line between a repair and an improvement decides whether you deduct this year or depreciate over decades. Fixing the boiler is a repair; replacing it is an improvement. Patching a roof is a repair; a new roof is an improvement. Keep the invoices worded accurately, because the wording is what an examiner reads.
Step 3Whether the loss actually helps you
| Situation | Can the paper loss be used | Note |
|---|---|---|
| Rental loss against other passive income | Yes | Other rentals, some partnerships |
| Against salary, generally | No | Rental activity is passive by default |
| Active participation, income under $100,000 | Up to $25,000 a year | Phases out and disappears by $150,000 of income |
| Real estate professional status | Yes, in full | Strict hour tests; rarely available to someone with another career |
| Suspended losses | Carried forward | Released in full when the property is sold |
| Non-resident with net election | Against that rental income | The election is what makes deductions available at all |
A non-resident who does not make the net election is taxed at 30% of gross rent with no deductions and no depreciation. The election is the difference between the whole of this guide applying to you and none of it.
Step 4Recapture: the bill at the end
Depreciation reduces your basis in the property. When you sell, the portion of the gain created by that reduction is taxed as recaptured depreciation at up to 25% federally, ahead of the ordinary capital gains rate. Ten years of the $26,182 deduction above means roughly $262,000 of recapture and a federal charge of up to about $65,000.
It is a deferral rather than a forgiveness, and it is still worth having: a deduction now against a tax years later is money at your disposal in the meantime. What is not worth having is the mistake of skipping it. Basis is reduced by depreciation “taken or allowable”, so an owner who never claimed it pays the recapture anyway, having had none of the benefit.
| Hold period | Depreciation claimed | Recapture at 25% |
|---|---|---|
| 5 years | $130,910 | Up to $32,700 |
| 10 years | $261,820 | Up to $65,500 |
| 20 years | $523,640 | Up to $130,900 |
| 27.5 years | $720,000 | Up to $180,000 |
A 1031 exchange defers both the gain and the recapture into the replacement property. Death resets the basis for heirs, which interacts with the $60,000 estate exemption a non-resident receives.
In practice yes. Basis is reduced by the depreciation allowable whether or not you claim it, so declining to claim costs you the deduction without avoiding the recapture.
The land-to-building ratio in the county tax assessment is the common method and is defensible. An appraisal apportionment is stronger where the numbers are large.
Depreciation starts when the property is placed in service as a rental, using the lower of cost or market value at that date. Keep evidence of the value on the conversion date.
On larger properties it can accelerate a meaningful share of the deduction into the early years. It costs several thousand dollars, so it is a question of scale.
A co-op owner holds shares rather than real property, and the treatment differs. Ask a CPA about your specific building before assuming the ordinary rules.
Let’s talk first
Tell us what you are buying and how you will hold it, and we will introduce a CPA who handles non-resident landlords before the first rent is collected.
RELATED GUIDES
Recent transactions
A sample of the sales, purchases and rentals we acted on in 2025 and 2026.
Real estate brokerage services are provided through R New York.
Important notice
The figures on this page are general information as of August 2026 and do not represent an offer, a quote, or a guarantee of any transaction terms. Reinvent NY does not provide legal, tax, or investment advice. Confirm anything material with an attorney and a CPA before you act on it. Nothing here is a solicitation to invest, and no return is promised. Real estate brokerage services are provided through R New York.