What Is Depreciation in Simple Terms?

Depreciation is the IRS’s way of recognizing that buildings wear out over time.

When you own a property that earns income — like a rental house or an office building — the IRS lets you deduct part of its cost every year. This deduction helps you recover the cost of income-producing property gradually.
You get to write off the building’s value bit by bit, every year — even though you didn’t spend new money.

That deduction lowers your taxable income, which means you pay less in taxes and keep more cash in your pocket.

I’ve been around since dial-up internet and double-digit mortgage rates.
I’ve seen three housing bubbles, two manias, and more “new financial revolutions” than I can count.

And through all that noise, one simple tax break has quietly rewarded real estate investors year after year — no gimmicks, no guessing:

Depreciation.

It’s the only tax break that doesn’t ask you to spend a dime, yet puts cash right back in your pocket. Let’s unpack how it works, why most investors underuse it, and how to fix it before December 31.

How Depreciation Works

You buy a property for $800,000.
You allocate $200,000 to land and $600,000 to the building.

Now, because land never depreciates, you only claim the $600,000 building value.

For residential rentals, the IRS allows you to depreciate over 27.5 years.
For commercial buildings, it’s 39 years.

So for that $600,000 building:
$600,000 ÷ 27.5 = $21,818 depreciation per year.

If you’re in a 35% tax bracket, that’s $7,636 in real tax savings every year — without spending an extra dime.

What Is a Depreciation Deduction for Rental Property?

The depreciation deduction is simply your annual write-off for the portion of your property that’s “wearing out.”
It’s one of the biggest advantages of owning rental real estate.

If you own a rental, you can deduct this amount each year against your rental income  lowering your tax bill automatically.

But most investors claim far less than they should.

The Hidden Problem: Most Investors Leave 10%–40% of Depreciation on the Table

You’d think everyone claims depreciation correctly.
They don’t.

After reviewing thousands of returns, we’ve found three consistent mistakes that silently rob investors of thousands every year.

1. Botched Basis Allocation

Your “basis” — the cost you depreciate — depends on how you split land vs. building value.
Most investors accept whatever their county assessor says. Big mistake.

Assessors often overvalue land, shrinking your depreciation base.
A smaller depreciation base means smaller deductions — every single year.

Fix it: Use a defensible appraisal or cost-segregation study to justify a lower land ratio. That boosts your depreciable base — legally.

2. Lost Improvements

Every upgrade matters. Roofs, HVAC systems, flooring, lighting, elevators — all of them can be capitalized and depreciated.

But most property owners forget to log them in their fixed-asset schedule.
Some even lump deductible repairs into “capital improvements,” losing current-year deductions.

Fix it: Track every upgrade. The IRS lets you expense certain improvements immediately under “safe-harbor” rules (Publication 527 and Tangible Property Regulations).

3. No Catch-Up Depreciation

If you missed depreciation in past years, don’t panic — you can catch up without amending old returns.

File Form 3115 (Change in Accounting Method) to claim all missed depreciation this year as a Section 481(a) adjustment.
It’s a one-time move that can create a five-figure deduction today.

How Much Depreciation Can You Write Off on a Rental Property?

It depends on three things:

• The building’s cost (excluding land)
  
• The type of property (residential = 27.5 years; commercial = 39 years)
  
• Any capital improvements made
  

The higher your depreciable base, the bigger your write-off. That’s why reviewing your land/building split and missed improvements is key.

Is It Worth Claiming Depreciation on Rental Property?

Absolutely — it’s one of the most powerful tax tools available.

Depreciation gives you tax-free cash flow — you collect rent, deduct depreciation, and reduce your taxes, all without spending anything.

For long-term investors, the math compounds:
Over 10 years, that’s $76,000+ in savings on a single property

Is Depreciation Good or Bad?

Depreciation is overwhelmingly good when managed strategically.
However, some investors worry about something called depreciation recapture.

When you sell, the IRS “recaptures” your past depreciation deductions and taxes them at up to 25%.
That might sound bad — but it’s not.

Here’s why:

• You save real cash today, which compounds as you reinvest.
  
• You can defer recapture using a 1031 exchange (swap into another property).
• You can even erase recapture entirely if your heirs inherit your property with a step-up in basis.
  

So while recapture exists, smart investors use strategy to win both now and later.

What Is the Downside of Depreciation on a Rental Property?

There’s only one real downside: not understanding the rules.

If you sell without planning, you may trigger recapture taxes.
But with a 1031 exchange or long-term hold, you can legally defer or eliminate them.

The real “downside” is missing depreciation deductions you’re entitled to — because you didn’t track, optimize, or catch up on them.

Why Your Tax Software Won’t Catch This

Tax software can’t:

• Rebuild your land/building allocation
  
• Apply safe-harbor rules correctly
  
• Reclassify missed improvements
  
• File Form 3115 to claim prior depreciation
  
• Time your renovations for maximum benefit
  

That’s where strategy beats automation.
Software calculates. Strategists create results.

Real-World Example

A client bought a $1.2 million fourplex five years ago.zTheir accountant used a 40% land, 60% building split and never added $180,000 in upgrades.

We corrected the ratio to 25% land, added the missing improvements, and filed Form 3115.

Result?
A $210,000 catch-up deduction this year — and $77,700 in cash saved instantly.

Same property.
Same rules.
Just applied right.

How Much Depreciation Can You Claim on an Investment Property?

There’s no upper limit — only what’s reasonable based on your cost basis.
That’s why professional review matters.

If your depreciation schedule hasn’t been reviewed since before COVID, you’re probably leaving money on the table.

How We Help at John Geantasio CPA LLC

We don’t just “do your taxes.”
We engineer tax flow.

Step	Our Approach	Your Result
Rebuild your basis	Review deeds, appraisals, and cost data	Larger, audit-proof deductions
Classify improvements	Log every addition correctly	No missed write-offs
Apply catch-up depreciation	File Form 3115	Immediate cash flow
Align timing	Integrate with renovation and financing goals	Optimized deductions
Audit-proof documentation	Backed by IRS-ready workpapers	Peace of mind

This isn’t accounting.
It’s cash-flow engineering.

The Bottom Line

Depreciation isn’t a line item — it’s leverage.
It rewards you for what you already own.

If you’ve bought, renovated, or refinanced in the last few years, you could be sitting on tens of thousands in unclaimed deductions.

The good news? It’s fixable — and you don’t have to spend another dollar to unlock it.

Let’s Run the Numbers Together

At John Geantasio CPA LLC, we specialize in uncovering missed depreciation and building strategies that multiply your cash flow legally.

Book a Free Strategy Call today.
We’ll review your depreciation schedule, spot hidden opportunities, and show exactly how much “found cash” you can reclaim this year.

Because in real estate, strategy always beats luck — every single time.