To calculate depreciation on inherited rental property, start with the property’s fair market value on the date the prior owner died, subtract the portion allocated to land, and divide the remaining building value by 27.5 years. That gives you the annual straight-line deduction under the Modified Accelerated Cost Recovery System, with a mid-month convention reducing your deduction in the first year and the last. The number you land on is only as good as the two inputs behind it: the date-of-death value and the land-versus-building split.
Step 1: Set Your Basis at the Date-of-Death Fair Market Value
When you inherit property, your tax basis resets to the fair market value on the date the prior owner died. This is the step-up in basis, and it applies no matter what the original owner paid decades earlier.1Internal Revenue Service. Gifts and Inheritances If the decedent bought the property for $150,000 and it was worth $500,000 at death, your starting basis is $500,000. All the appreciation during their lifetime is wiped clean for depreciation purposes.
The rule works both ways. If the property was worth less at death than what the decedent paid for it, your basis is that lower value. You do not get to use the higher original cost.1Internal Revenue Service. Gifts and Inheritances
Document the Value with an Appraisal
A formal appraisal by a qualified professional near the date of death is the strongest evidence of fair market value. The appraiser should hold a recognized designation, follow the Uniform Standards of Professional Appraisal Practice, and regularly perform appraisals for compensation.2Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions Those standards come from the charitable contribution rules, but applying them to an inheritance appraisal gives you the most defensible documentation if the IRS ever questions your basis. Fees for a single-family residential appraisal typically run from a few hundred to over a thousand dollars.
Community Property Changes the Math
If you inherited from a spouse and lived in a community property state, both halves of the property get the step-up at the first spouse’s death, not just the deceased spouse’s half. In common law states, only the decedent’s ownership share steps up. That difference can meaningfully change your depreciable basis when both spouses co-owned the property, so confirm which category your state falls into before you calculate.
Step 2: Split the Basis Between Land and Building
Land does not depreciate under federal tax law, so any portion of your basis allocated to land produces no deduction.3Internal Revenue Service. Publication 527 (2025), Residential Rental Property You have to split the stepped-up basis into a land piece and a building piece, and only the building piece feeds the depreciation calculation.
The most common method is to use the ratio from your local property tax assessor. If the assessor values the land at 25% and improvements at 75%, apply that same ratio to your stepped-up basis. On a $500,000 basis, that leaves you with $125,000 of non-depreciable land and $375,000 of depreciable building. An independent appraisal that breaks out land and improvements separately can produce a different ratio, and appraisers often assign a lower land percentage than assessors. If the assessor’s numbers look stale or out of sync with the market, paying for an appraisal that itemizes the split is worth the cost.
Pull Out Land Improvements Separately
Fences, sidewalks, driveways, paving, and landscaping tied to the building are not part of the land and not part of the building. They are 15-year property under MACRS, which means the cost comes back to you much faster than the 27.5-year building schedule.4Internal Revenue Service. Publication 946 (2025), How To Depreciate Property If the inherited property has substantial fencing, a paved parking area, or other site work, separating those values out in your appraisal accelerates a meaningful chunk of your deductions.
Step 3: Divide by 27.5 and Apply the Mid-Month Convention
Residential rental buildings are depreciated straight-line over 27.5 years under MACRS.5Internal Revenue Service. Publication 527 (2025), Residential Rental Property – Section: Depreciation Methods Divide the depreciable building basis by 27.5 to get the annual deduction. A $400,000 depreciable basis produces roughly $14,545 per year. You claim it on Form 4562 and carry it to Schedule E along with the rest of your rental income and expenses.6Internal Revenue Service. About Form 4562, Depreciation and Amortization
You do not get a full year of depreciation in year one. Under the mid-month convention, the IRS treats the property as placed in service at the midpoint of whatever month it becomes available for rent, regardless of the actual day.7Internal Revenue Service. Publication 946 (2025), How To Depreciate Property – Section: Which Convention Applies If the property is ready for tenants in March, you get half of March plus nine full months, so 9.5 months of depreciation that year. Every year after, you claim the full amount until the depreciable basis is used up or you sell. The same mid-month proration applies in the year of disposition.
When Does Depreciation Actually Start?
If the decedent was already renting the property, you begin a new depreciation schedule using your stepped-up basis on the date you take over as owner. If the property was the decedent’s personal residence or sat vacant, depreciation does not begin until you make it available for rent. The placed-in-service date is the day the property is ready and available for tenants, not the date of death and not the date probate closes.3Internal Revenue Service. Publication 527 (2025), Residential Rental Property
Faster Deductions for Appliances, Furniture, and Site Work
The building is not the only depreciable asset. Appliances, carpeting, furniture, and similar personal property inside the rental are 5-year property, not 27.5-year.3Internal Revenue Service. Publication 527 (2025), Residential Rental Property They also use the 200% declining balance method rather than straight-line, which loads more of the deduction into the earliest years. If the inherited property came furnished or has significant appliances, breaking those values out from the building produces substantially larger deductions up front.
For qualifying personal property and certain land improvements placed in service after January 19, 2025, and before January 1, 2031, 100% bonus depreciation lets you deduct the entire cost in year one. Appliances, furniture, flooring, window treatments, fencing, and paving all qualify. The building structure does not. On higher-value properties, a cost segregation study, where a specialist identifies and reclassifies components into shorter recovery periods, is the standard way to capture as much of this benefit as possible.
If You Lived in the Property First
Moving into the inherited property before renting it out changes the basis calculation. When you eventually convert it to rental use, your depreciable basis becomes the lesser of the fair market value on the conversion date or your adjusted basis at that point.3Internal Revenue Service. Publication 527 (2025), Residential Rental Property Because your adjusted basis in inherited property starts at the date-of-death value, the conversion basis is usually the lower of that stepped-up value and the value at conversion.
Appreciation during your personal-use period does not increase your basis, but a decline in value during that period does reduce it. If you know the property is going to be a rental, converting it sooner rather than later protects you from a soft market chipping away at your depreciable basis.
What Depreciation Costs You When You Sell
Every dollar of depreciation you claim comes back at sale. Your basis is reduced by all depreciation you claimed, or were entitled to claim even if you forgot, producing an adjusted basis. The gap between the sale price and that adjusted basis is your taxable gain.
That gain splits in two. The portion equal to the depreciation you took is unrecaptured Section 1250 gain, taxed at a federal rate up to 25%. Anything above that is long-term capital gain at 0%, 15%, or 20%, depending on your income.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses If you claimed $100,000 of depreciation and sell for $150,000 more than your adjusted basis, the first $100,000 is recaptured at up to 25% and the remaining $50,000 is capital gain. The sale goes on Form 4797, and for inherited property the instructions tell you to write “INHERITED” in the acquisition date column rather than an actual date.9Internal Revenue Service. Instructions for Form 4797 (2025)
Because recapture happens whether or not you actually claimed the depreciation each year, skipping the deduction does not spare you anything at sale. Take it.