What is the depreciation period for residential income property purchased today?

The depreciation period for residential income property is established by the Internal Revenue Service (IRS) guidelines. For residential rental properties, the correct depreciation period is 27.5 years. This period allows property owners to recover the cost of the property over time through annual depreciation deductions on their tax returns.

When calculating depreciation, residential income properties are treated differently than commercial properties, which have longer depreciation periods. Using the 27.5-year term, property owners can take a portion of their property's cost basis as a deduction each year, which can significantly impact their taxable income.

Understanding the correct depreciation period is essential for real estate investors because it affects cash flow, tax liability, and overall investment strategy. A thorough grasp of these tax rules can provide financial benefits and inform decision-making regarding potential purchases and rental strategies.