Rental Property Depreciation: The Florida Landlord's Tax Guide

Depreciation is the tax break that turns rental income into a paper loss—without writing a single check. It's one of the most powerful tools for Florida landlords, and most people underuse it or misunderstand how it works. See our Florida landlord tax filing guide for 2025 for more.

Here's the idea: the IRS lets you deduct the cost of your rental building over time because it "wears out." You don't deduct the land (it doesn't wear out), but the structure does. Over 27.5 years for residential rentals, you get a steady deduction that reduces your taxable income every year.

How Does the 27.5-Year Schedule Work?

Residential rental property—single-family homes, duplexes, small apartment buildings where 80% or more of income comes from dwelling units—uses a 27.5-year recovery period under IRS MACRS rules. Commercial property uses 39 years, so your Orlando or Tampa house or duplex gets the shorter schedule.

Your depreciable basis is what you paid for the building, plus closing costs and capital improvements, minus the value of the land. Land isn't depreciable. In Florida, land typically runs 20–30% of total value depending on location—a $300,000 property might have $60,000 in land, leaving $240,000 to depreciate. Your county property appraiser's assessment can help, but many landlords use an 80/20 or 75/25 building-to-land split when the appraisal doesn't break it out.

Formula: Depreciable basis ÷ 27.5 = annual straight-line deduction. On $240,000, that's about $8,727 per year. The IRS Publication 527 has the exact MACRS percentage table—year one is prorated based on the month you placed the property in service (mid-month convention), so you don't get a full year in month one.

What About Bonus Depreciation and Cost Segregation?

Bonus depreciation lets you deduct a chunk of qualified property in year one instead of spreading it over 27.5 years. Legislation in early 2025 restored 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025. Before that, the phase-out was 60% in 2025 and 40% in 2026. If you're buying or renovating now, check with your CPA on current rules—they've shifted.

Cost segregation is an IRS-approved study that reclassifies building components into shorter lives. Instead of depreciating everything over 27.5 years, you might depreciate carpet, appliances, and certain fixtures over 5 or 7 years. On a $400,000 property, a cost seg study can front-load $60,000–$80,000 in year-one deductions versus about $11,636 with standard depreciation—potentially $15,000–$20,000 in tax savings at a 25% rate. Studies typically cost $5,000–$15,000 and make the most sense on properties worth $250,000 or more.

The catch: accelerated deductions trigger depreciation recapture when you sell. The IRS "claws back" those benefits at up to 25% on the recaptured amount. A 1031 exchange can defer that tax. If you're holding long-term, the front-loaded savings often outweigh the recapture—but run the numbers with your accountant.

How Does Depreciation Reduce Your Taxable Income?

Depreciation is a non-cash expense. You don't write a check, but it still reduces your Schedule E income. If your rental brings in $24,000 in rent and you have $18,000 in cash expenses (mortgage interest, insurance, repairs, management), your cash flow might be $6,000. Add $8,727 in depreciation, and your taxable income drops to a paper loss of $2,727. That loss can offset other income—subject to passive activity rules.

Passive activity loss rules limit when you can use rental losses against W-2 or business income. Rental real estate is usually passive, so losses only offset passive income—unless you qualify as a real estate professional. To qualify, more than 50% of your personal services must be in real estate, and you must put in 750+ hours per year. That's tough if you have a full-time job elsewhere. There's a limited exception: up to $25,000 in rental losses can offset nonpassive income if you "actively participate," but it phases out above $100,000 in adjusted gross income. The IRS Publication 925 has the details.

When Does the Property Get "Placed in Service"?

The depreciation clock starts when the property is ready for tenants—not when you close, and not when you sign the first lease. If you close in March, do a quick paint and carpet refresh, and list it in April, it's placed in service in April. The IRS uses a mid-month convention: they treat the property as placed in service on the 15th of that month for calculation purposes. So April placement means you get about 8.5 months of depreciation in year one. Don't delay—every month you wait is a month of deductions you'll never get back.

What Happens When You Sell? Depreciation Recapture

When you sell a rental, the IRS recaptures the depreciation you claimed at a special rate. For real estate (Section 1250 property), that rate is 25%. So if you claimed $100,000 in depreciation over the years, you'll pay tax on that $100,000 at 25%—$25,000—plus capital gains tax on any remaining profit. It's still a good deal: you got deductions at your ordinary income rate (maybe 22–37%) and pay recapture at 25%. You came out ahead.

The recapture applies whether or not you actually took the depreciation. The IRS assumes you did and reduces your basis accordingly. So if you skipped depreciation to "save it for later," you didn't—you just gave up the benefit and still owe recapture. Take the deduction.

A Simple Schedule E Example

You buy a $275,000 Orlando duplex. Land is $70,000, building is $205,000. You place it in service in March.

• Year 1 depreciation: About $6,500 (prorated for 10 months)
• Year 2–27: About $7,455 each year
• Year 28: Remaining balance

Your Schedule E shows rental income, subtracts mortgage interest, property taxes, insurance, repairs, management fees, and depreciation. If the bottom line is negative, you've created a paper loss. If you have other passive income or qualify for an exception, that loss can reduce your overall tax bill.

What's good or bad? A $275,000 duplex generating $2,400/month ($28,800/year) in rent might have $18,000 in cash expenses (interest, taxes, insurance, repairs, management). Add $7,455 in depreciation and your taxable income drops to about $3,345. At a 22% federal rate, that's $736 in tax on $10,800 of cash flow—an effective rate of under 7%. Without depreciation, you'd pay 22% on the full $10,800. The deduction is real money.

For more on how property taxes and other deductions fit in, see our Florida rental property tax guide. If you're an out-of-state landlord, depreciation works the same—you're just reporting it from wherever you live. Our Orlando property tax guide covers local assessment and appeal options that affect your overall tax picture.

Who Should Consider Cost Segregation?

Cost segregation studies make the most sense when you've just bought or renovated. The study reclassifies components—carpet, appliances, lighting, landscaping—into 5-, 7-, or 15-year lives. With bonus depreciation (when available), you can deduct a large chunk of that in year one. Properties under $250,000 often don't justify the $5,000–$15,000 study cost; the math works better on $400,000+ purchases or major rehabs. If you're holding 7+ years, the front-loaded savings usually outweigh the recapture hit. If you're flipping in 2 years, the recapture can eat most of the benefit. Run the numbers with a CPA who does real estate.

Common Depreciation Mistakes

Depreciating the land. You can't. Split the purchase price and use a reasonable allocation.

Starting depreciation too late. The clock starts when the property is "placed in service"—ready for tenants, even if it's still vacant. Don't wait until you sign a lease.

Forgetting about improvements. A new roof, HVAC replacement, or major renovation gets depreciated. Add it to basis and depreciate over the appropriate recovery period (often 27.5 years for structural improvements).

Ignoring recapture in your exit plan. If you're selling in a few years, factor recapture into your numbers. A 1031 exchange defers it; selling outright means writing a check.

Using the wrong recovery period. Residential rentals get 27.5 years. Commercial gets 39. Land improvements (parking, fencing, landscaping) get 15 years. Mix them up and you're either under-deducting or inviting an audit.

Stopping depreciation when the property is vacant. You don't stop depreciating when the unit is empty. The property is still "in use" for the business of renting—you're just between tenants. Depreciation continues. The only time you might pause is if you convert the property to personal use or take it off the market entirely.

What About Land Improvements?

Land itself isn't depreciable, but improvements to the land—parking areas, fencing, landscaping, drainage—can be. These "land improvements" typically use a 15-year recovery period under MACRS. If you put in a new driveway, fence, or irrigation system as part of a purchase or renovation, your cost segregation study or tax preparer will allocate a portion to these components. They depreciate faster than the building, which can front-load deductions. Don't lump them into the 27.5-year building pool if they qualify for the shorter life.

The Bottom Line

Depreciation is free money from the IRS—a deduction that costs you nothing out of pocket. Florida landlords get the same treatment as landlords everywhere on the federal side; the difference is you're not also paying state income tax on rental income. Use the 27.5-year schedule, consider cost segregation on larger purchases, and keep good records. When you sell, plan for recapture—but don't let that stop you from taking the deduction now.

Want to see how the numbers pencil out for a specific property? Get a free rental analysis and we'll walk through income, expenses, and what you can expect to keep after taxes.