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 a Florida landlord has, and most owners either underuse it or misunderstand how it works. See our Florida landlord tax filing guide for 2025 for the full picture.

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 — land doesn't wear out — but the structure does. Over 27.5 years for residential rentals, you get a steady deduction that lowers your taxable income every single year.

How does the 27.5-year depreciation schedule work?

Residential rental property in Florida depreciates over a 27.5-year recovery period under IRS MACRS rules. Your annual deduction is the depreciable basis — the building cost plus closing costs and capital improvements, minus the land — divided by 27.5. On a $240,000 building, that's about $8,727 a year, every year, with no cash leaving your pocket.

Residential rental property — single-family homes, duplexes, small apartment buildings where 80% or more of income comes from dwelling units — uses the 27.5-year schedule under IRS Publication 527. Commercial property uses 39 years, so your Orlando or Tampa house or duplex gets the shorter, more favorable schedule.

Land isn't depreciable, so you have to separate it out. In Florida, land typically runs 20–30% of total value depending on location — a $300,000 property might carry $60,000 in land, leaving $240,000 to depreciate. Your county property appraiser's assessment can help with the split, and many landlords use an 80/20 or 75/25 building-to-land ratio when the appraisal doesn't break it out. Year one is prorated by the month you placed the property in service under the mid-month convention, so you never get a full year of depreciation in the first year.

What are bonus depreciation and cost segregation?

Bonus depreciation lets you deduct a large share of qualified property in year one instead of spreading it over decades. Cost segregation is the IRS-approved study that finds that qualified property inside your building. Used together on a recent purchase, they can turn a modest first-year deduction into a five-figure one.

The One Big Beautiful Bill Act restored 100% bonus depreciation — and made it permanent — for qualified property acquired and placed in service after January 19, 2025. Before that bill, bonus depreciation was phasing down and headed to 40% in 2026. Qualified property means assets with a recovery period of 20 years or less: appliances, carpet, certain fixtures, land improvements. The 27.5-year building itself doesn't qualify, which is exactly why cost segregation matters.

A cost segregation study reclassifies building components into shorter lives — carpet, appliances, lighting, and landscaping moved into 5-, 7-, or 15-year buckets. On a $400,000 property, a 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, clawed back at up to 25% on the recaptured amount. A 1031 exchange can defer that tax.

How does depreciation reduce your taxable income?

Depreciation is a non-cash expense. You don't write a check, but it still drops your Schedule E income. A rental that brings in $24,000 with $18,000 in cash expenses shows $6,000 of cash flow — but add an $8,727 depreciation deduction and the taxable number becomes a $2,727 paper loss. That's income you collected and don't pay tax on.

Whether you can use that paper loss against other income depends on the passive activity loss rules. Rental real estate is usually passive, so the losses only offset passive income — unless you qualify as a real estate professional, which takes more than 50% of your personal services in real estate plus 750+ hours a year. That's tough with a full-time job elsewhere. There's a narrower exception: up to $25,000 in rental losses can offset nonpassive income if you "actively participate," but it phases out above $100,000 of adjusted gross income and disappears entirely at $150,000. IRS Publication 925 has the full rules.

When does a rental property get "placed in service"?

The depreciation clock starts when the property is ready and available to rent — not when you close, and not when the first tenant signs. If you close in March, do a paint-and-carpet refresh, and list it in April, it's placed in service in April. Every month you delay listing is a month of depreciation you never get back.

The IRS uses a mid-month convention: it treats the property as placed in service on the 15th of that month for calculation purposes. So an April placement gives you roughly 8.5 months of depreciation in year one. The practical lesson — get the unit rent-ready and listed, and the deduction starts whether or not a tenant has moved in yet.

What happens when you sell? Depreciation recapture explained

When you sell a Florida rental, the IRS recaptures the depreciation you claimed. For real estate — Section 1250 property — that recapture is taxed at a maximum of 25%. Claim $100,000 of depreciation over the years, and at sale you owe up to $25,000 on it, plus capital gains tax on any remaining profit.

It's still a good deal. You took those deductions at your ordinary income rate — maybe 22–37% — and pay recapture at 25%, so you came out ahead on the spread. And recapture applies whether or not you actually claimed the depreciation: the IRS assumes you did and reduces your basis accordingly. Skip depreciation to "save it for later" and you didn't save anything — you gave up the deduction and still owe the recapture. Take the deduction every year.

What does depreciation look like on Schedule E?

On Schedule E, depreciation is a line item that sits alongside mortgage interest, property taxes, insurance, repairs, and management fees. It's the one expense that doesn't cost you cash, and it's often what pushes a profitable rental into a paper loss on the return.

Say you buy a $275,000 Orlando duplex — $70,000 land, $205,000 building — and place it in service in March. Year one depreciation is about $6,500 (prorated for 10 months); years 2 through 27 run about $7,455 each; year 28 mops up the balance. Here's the math that matters: that duplex renting for $2,400/month brings in $28,800 a year. Subtract $18,000 in cash expenses and you've got $10,800 of cash flow. Add the $7,455 depreciation deduction and taxable income drops to about $3,345 — roughly $736 in federal tax at 22%, an effective rate under 7% on cash you actually pocketed. Without depreciation you'd pay 22% on the full $10,800. The deduction is real money. For how property taxes fit the rest of the picture, see our Florida rental property tax guide and, for Orlando owners, the Orlando property tax guide.

Who should consider a cost segregation study?

Cost segregation pays off most for owners who just bought or renovated a property worth $250,000 or more and plan to hold it at least seven years. The study reclassifies components into 5-, 7-, and 15-year lives, and with 100% bonus depreciation now permanent, much of that can be deducted in year one.

The math gets thin below $250,000 — the $5,000–$15,000 study cost eats too much of the benefit. It also gets thin if you're flipping in two years, because depreciation recapture can claw back most of the front-loaded savings. The sweet spot is a $400,000-plus purchase or a major rehab held long term. Run the numbers with a CPA who specializes in real estate before you commission a study. For out-of-state landlords, depreciation and cost segregation work identically — you just report them from wherever you live.

What are the most common depreciation mistakes?

Most depreciation errors fall into a handful of buckets. Depreciating the land — you can't; split the price with a reasonable allocation. Starting too late — the clock runs from "placed in service," not from the first signed lease. Forgetting improvements — a new roof or HVAC gets added to basis and depreciated, not expensed.

Two more catch landlords every year. Using the wrong recovery period: residential rentals get 27.5 years, commercial gets 39, and land improvements like fencing or a driveway get 15 — mix them up and you're either under-deducting or inviting an audit. And stopping depreciation during a vacancy: you don't. A unit between tenants is still in the business of renting, so depreciation continues. It only pauses if you convert the property to personal use or pull it off the market for good. The biggest mistake of all is ignoring recapture in your exit plan — see our Florida rental tax deductions checklist to keep the full picture organized.

Can you depreciate land improvements?

Land itself isn't depreciable, but improvements to the land are. Parking areas, fencing, landscaping, drainage, and irrigation typically use a 15-year recovery period under MACRS — faster than the 27.5-year building, which front-loads the deductions.

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 should allocate a portion of the cost to these 15-year components rather than burying them in the 27.5-year building pool. With 100% bonus depreciation in play, qualifying 15-year land improvements can be deducted entirely in the year placed in service — a meaningful reason not to lump everything into the building.

The bottom line on Florida rental depreciation

Depreciation is a deduction that costs you nothing out of pocket. Florida landlords get the same federal treatment as landlords everywhere — the difference is you're not also paying state income tax on the rental income. Use the 27.5-year schedule, consider cost segregation on larger purchases, keep clean records, and plan for recapture when you sell. Don't let the recapture scare you off 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.