Rental Property Depreciation Tax Deduction 2026 | Claim List

Managing multiple rental units means depreciation isn't just a tax break, it's a portfolio-level strategy worth tens of thousands annually.

Mastering the rental property depreciation tax deduction rules means transforming property wear and tear into immediate cash flow and strategic tax shields across your entire portfolio. This guide cuts through the noise and offer an authoritative claim list and a clear roadmap for your 2026 tax strategy.

Key takeaways

• The OBBBA permanently restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.
• While the building structure uses a 27.5-year straight-line schedule, land improvements and personal property can often be written off immediately via cost segregation.
• Depreciation is not a "free lunch"; you must plan for depreciation recapture tax (up to 25%) upon sale, regardless of whether you claimed the deduction.
• New permanent limits for Section 179 are set at $2.5 million, though this deduction remains restricted for most residential landlords compared to bonus depreciation.
• Identifying distinct assets—from appliances to fences—is critical for separating 100% deductible items from those stuck on long-term schedules.

Rental property depreciation basics

Depreciation on rental property is a non-cash tax deduction that allows you to recover the cost of your income-producing property over its IRS-defined "useful life.” This means deducting roughly 3.6% of each building's value annually, which compounds when managing multiple properties.

Rental property depreciation methods for 2026

There are two most commonly used rental property tax depreciation methods.

Straight-line depreciation (MACRS GDS)

Modified Accelerated Cost Recovery System (MACRS) is the default depreciation method under the General Depreciation System (GDS). Under this method, the cost of residential rental buildings is spread evenly over 27.5 years.

How to calculate annual straight-line depreciation

Calculating your deduction involves determining your "cost basis," which is typically the purchase price plus closing costs, legal fees, and title insurance. You must subtract the value of the land before applying the 27.5-year divisor.

For a 12-unit building purchased at $3M:

• Determine land value (per appraisal): $750,000
• Calculate depreciable basis: $3M - $750,000 = $2.25M
• Annual deduction: $2.25M ÷ 27.5 = $81,818

This $81,818 reduction applies to taxable rental income dollar-for-dollar. Across a portfolio, these deductions create substantial "paper losses" that can shelter other income, depending on your tax status.

Mid-month convention in practice

Under the "mid-month convention," the IRS treats all properties as placed in service mid-month. This means no matter what day of the month you place the property in service, you are treated as having started using it in the middle of that month. A July acquisition generates 5.5 months of depreciation in year one, not six. for the first year of service. 

Properly categorize rental property expenses to maximize your basis. Be sure to distinguish between rental property operating expenses and improvements that add to your basis. For clarity on this, review the difference between capital expense and operating expense.

Accelerating depreciation: Strategic options for portfolio owners

Straight-line depreciation is powerful, but it spreads deductions over 27.5 years. For portfolio owners managing cash flow and growth, two strategies can accelerate these deductions into earlier tax years: bonus depreciation on rental property and Section 179 expensing.

Both allow you to write off certain assets immediately rather than over decades. The difference lies in what qualifies, how much you can deduct, and which strategy works best for residential rental portfolios.

Accelerated depreciation creates larger tax losses in year one. For multiple unit it helps you:

• Offset passive income from other properties
• Reduce taxable income (for Real Estate Professionals, even active income)
• Improve cash flow for acquisitions or capital improvements

The One Big Beautiful Bill Act (OBBBA) made 2026 a particularly advantageous year for these strategies. Here's how each works.

Strategy 1: Bonus depreciation for immediate write-offs

The OBBBA permanently restores 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. It allows you to deduct the full cost of eligible assets in the first year, rather than over 5, 7, or 15 years. This immediate write-off can create substantial tax losses to offset other passive income or, for Real Estate Professionals, active income.

To maximize this benefit, you need a precise claim list. Qualifying property generally includes assets with a recovery period of 20 years or less.

The 2026 claim list:

• 5-year property (Personal property): Appliances (stoves, refrigerators), carpeting, furniture (in furnished rentals), window treatments, removable flooring.
• 15-year property (Land improvements): Fences, sidewalks, driveways, parking lots, landscaping, retaining walls, stormwater/irrigation systems, swimming pools.
• Other qualified assets: Security systems, specialized A/V communication systems, and signage

Structural components like walls, roofs, and HVAC systems in residential buildings typically do not qualify for bonus depreciation.

To claim bonus depreciation, you need to commission a cost segregation study. These studies can reclassify 25-35% of a property's basis from 27.5 years down to 5, 7, or 15 years.

For a $500,000 building, a study might identify $100,000 worth of bonus-eligible assets. Understand how cost segregation and bonus depreciation work together, or learn more about how cost segregation works.

Strategy 2: Section 179 expensing

Section 179 allows up to $2.5M in immediate expensing but requires an "active trade or business" and can't create tax losses. For residential landlords managing passive rental activities, it's largely inaccessible.

Even with a real estate professional status, bonus depreciation is superior—it has no dollar cap and generates net operating losses. Section 179 is designed for active businesses buying equipment, not residential rental portfolios.

For a deeper look at the tax benefits of rental property depreciation, comparing these methods is essential.

Comparing depreciation strategies: Bonus depreciation vs Section 179 vs straight-line

Choosing the right depreciation method depends on your financial goals. Use the table below to compare your options for the 2026 tax year.

How to claim rental property depreciation in 2026

You add tax deductions for rental property depreciation on the IRS Form 4562 (Depreciation and Amortization) with your annual return. This rental property depreciation tax form feeds into Schedule E (Supplemental Income and Loss).

To ensure you enter the correct information on Form 4562 for maximum deduction, maintaining clear financial records across properties is important. Baselane's bookkeeping tags transactions and generates Schedule E-aligned reports, eliminating the need to hunt for April receipts.

Common mistakes to avoid while claiming depreciation tax deductions

• Depreciation recapture is your biggest risk. When you sell, the IRS recaptures claimed depreciation (or allowable depreciation you didn't claim) and taxes it at up to 25%—higher than typical long-term capital gains rates. Skipping the deduction doesn't avoid recapture. The IRS applies recapture to depreciation that was "allowed or allowable." You owe the tax whether you claimed it or not.
• Misclassifying repairs as improvements. Repairs maintain value (immediate deduction as operating expenses); improvements add value (must be depreciated). Misclassification triggers audit flags across your portfolio.

Use one of the best accounting software for rental properties or landlord accounting software to accurately track landlord tax deductions for each property to maximize rental property tax deductions.

Strategies to minimize depreciation recapture & maximize long-term gains

While recapture is a liability, several strategies can defer or eliminate it.

• 1031 exchange: This allows you to roll the proceeds from the sale of one investment property into another "like-kind" property, deferring both capital gains and depreciation recapture taxes indefinitely. Read our 1031 exchange guide for details.
• Stepped-up basis: If you hold property until death, your heirs receive the property with a "stepped-up" basis equal to its fair market value at the time of your passing. This effectively wipes out the accumulated depreciation and the associated recapture tax liability.
• Capital loss offsets: If you have other capital losses in your portfolio, you may be able to use them to offset the gains triggered by the sale of your rental property.

Note: Real estate tax law is nuanced. Consult a professional when considering cost segregation studies, planning 1031 exchanges, or managing portfolios with mixed asset types.

Other key 2026 tax changes impacting rental property investors

The OBBBA introduced several other provisions beyond depreciation that impact your 2026 tax strategy.

• Qualified business income (QBI): The OBBBA permanently extends the qbi deduction for rental property, allowing eligible landlords to deduct up to 20% of their net rental income. Check if you qualify under the qbi safe harbor rental property rules.
• Pass-through deductions: Since most landlords operate via LLCs or sole proprietorships, understanding the pass-through tax deduction is essential for lowering your effective tax rate.
• Business interest deduction: New rules have adjusted how interest expense limits are calculated (using EBITDA), potentially allowing for higher mortgage interest deduction on rental property for larger portfolios.

Maximize your 2026 tax savings with Baselane

Proper depreciation planning across 10+ units can generate six-figure deductions annually. But, the execution requires precise record-keeping which spreadsheet ot generic accounting software often fail to do.

Baselane tracks each asset's depreciation timeline and categorizes transactions to the right property and Schedule E category, giving you audit-ready reports year-round. Sign up today to be tax-ready all the time.