When Should I Stop Depreciating a Rental Property?

If you’ve owned a rental property for a few years, you’re probably used to seeing depreciation lower your taxable income. But depreciation isn’t a forever game. It has a hard stop.

The IRS gives you a set number of years to recover the cost of your property through depreciation. For residential rental property, it’s 27.5 years. For commercial rental property, it’s 39 years. So what happens after that? And are there exceptions where depreciation might stop early?

What Is Depreciation in Real Estate?

Depreciation lets you recover the cost of a rental property over time. Think of it like writing off the building’s wear and tear, year after year. This applies only to the structure, not the land.

• Residential properties: depreciated over 27.5 years
• Commercial properties: depreciated over 39 years

You start depreciating the property when it’s placed in service. That is, when it’s ready and available to be rented out.

So, When Do You Stop Depreciating?

1. End of the Depreciation Period

This is the most common scenario. You simply stop depreciating once you’ve reached the end of the recovery period:

• Residential rental: after 27.5 years
• Commercial rental: after 39 years

If you bought a house and started renting it on July 1, 2000, you’d stop depreciating on December 31, 2027.

Same idea for commercial: Buy an office building in 2000, start renting in 2001, and you stop depreciation in 2040.

Important note: You depreciate the building over a straight-line schedule, which spreads the cost evenly across the years.

2. Property Is No Longer Used as a Rental

If you convert the rental property into personal use, sell it, or it becomes vacant indefinitely (and you stop trying to rent it), depreciation halts.

Here’s how:

• Converted to personal use: You can no longer depreciate it from the date of conversion.
• Sold or disposed of: Depreciation ends on the date of sale.
• Destroyed: If the property is destroyed by fire or natural disaster, depreciation stops that year.

In short, once it’s not a rental, depreciation doesn’t apply.

3. Depreciation Fully Claimed, Even If You Didn’t Actually Take It

Here’s something that trips up many landlords: Depreciation is considered taken whether you claimed it or not.

That means:

• If you forgot to depreciate for a few years, the IRS still acts as if you did.
• When you sell the property, you’re responsible for recapturing that “allowed or allowable” depreciation and paying taxes on it.

So, failing to depreciate doesn’t buy you more years. You’ll still stop at the end of the schedule.

4. Change in Property Classification

Sometimes a property’s use changes, triggering a different depreciation schedule.

For example:

• You convert a residential rental into a commercial space.
• Or you switch from short-term vacation rental to long-term lease.

Depending on how it’s classified under IRS guidelines, this could reset or modify the depreciation schedule. A professional tax advisor should step in if this applies to you.

Depreciation Recapture: Don’t Forget This Part

When you sell the property, the IRS wants some of that tax savings back.

• The portion of gain tied to depreciation is taxed at up to 25% as “depreciation recapture.”
• This applies whether or not you actually claimed depreciation; again, the IRS considers it taken.

Example:

You bought a residential rental for $300,000 and claimed $100,000 in depreciation over 27.5 years. When you sell it, that $100,000 is subject to recapture tax.

Failing to prepare for recapture can lead to a nasty tax surprise. Make sure your exit strategy includes this calculation.

A Quick Comparison Table

Common Questions About Depreciation

Do I have to stop depreciating even if the building still has value?
Yes. The IRS depreciation schedule is based on time, not on the building’s market condition.

Can I extend depreciation beyond 27.5 or 39 years?
Nope. Unless you make capital improvements, which can start a new depreciation schedule for that specific improvement, the original depreciation ends when the schedule runs out.

What about land value?
Land doesn’t depreciate. When calculating depreciation, you must subtract the land’s value from the total purchase price.

How to Track Your Depreciation Accurately

• Use Form 4562: This is where depreciation is reported on your tax return.
• Keep a depreciation schedule: Your CPA or tax software should generate this each year.
• Track improvements separately: New roofs, HVAC upgrades, etc., have their own depreciation schedules.

What Happens After Depreciation Ends?

If you still own and rent out the property after the depreciation period ends, you no longer get annual depreciation deductions, but:

• You still report rental income and expenses
• You can still deduct operating costs like repairs, property management, taxes, and insurance
• Depreciation recapture still applies when you sell

Bottom line: The tax benefits don’t stop completely, just the depreciation part.

Real-World Example: Residential Rental

You buy a duplex for $300,000 in 2025. The land is worth $60,000, so the depreciable value is $240,000.

• $240,000 ÷ 27.5 = $8,727.27 per year
• You claim this each year until 2052 (assuming continuous rental use)
• In 2053, depreciation ends, but income and other expenses continue to be reported

Real-World Example: Commercial Property

You purchase a retail strip mall in 2025 for $1,000,000. Land is valued at $200,000, so the depreciable amount is $800,000.

• $800,000 ÷ 39 = $20,512.82 per year
• Depreciation ends in 2064, assuming no change in use or ownership

The Bottom Line

So, when should you stop depreciating a rental property? In short:

• When you hit 27.5 years (residential) or 39 years (commercial)
• When the property is sold, converted, destroyed, or no longer used as a rental
• When the depreciation schedule has been fully claimed.

Understanding when depreciation ends isn’t just about following IRS rules. It’s about planning smarter for your long-term rental strategy. Whether you’re a seasoned landlord or just getting started, knowing these timelines can help you avoid penalties, plan for taxes, and make better financial decisions.

FAQs

Can I start depreciating again if I rent the property after personal use?
Yes, but you’d need to calculate a new basis and follow the IRS guidance for changes in use.

Do improvements reset the depreciation clock?
Not for the whole property, but major improvements can be depreciated separately over their lifespan.

What if I never took depreciation?
You’re still considered to have taken it. Talk to a tax pro about amending past returns.

Does depreciation affect capital gains?
Yes. It increases your taxable gain via depreciation recapture when you sell.

Not sure how depreciation timelines or recapture rules apply to your rental property? Work 1:1 with a tax strategist to review your depreciation strategy, ensure accurate tracking, and avoid costly surprises when it’s time to sell.