Can You Deduct Depreciation On Your Home? + FAQs

Yes — but only under certain conditions.

If your home is purely your personal residence, you generally cannot deduct depreciation. However, if you use your home to produce income (for example, as a rental property or for a home office in a business), then depreciation deductions are allowed for the portion used for that purpose. In short, depreciation is a tax break reserved for business or investment use of a home, not personal use. Below we explore all the nuances of U.S. law on this topic in depth.

🏠 Over 80 million U.S. homeowners get no depreciation break on a primary residence – the IRS forbids write-offs for purely personal homes, no matter how much they age or wear out.
💸 Rental property owners love depreciation – it lets them write off a home’s cost over 27.5 years, often slashing taxable rental income (a non-cash tax deduction that boosts cash flow each year).
🔀 Mixed-use homes can qualify – use part of your home for business (home office) or rent out a room, and you can depreciate that portion. Strict rules (like IRC §280A) apply to allocate expenses between personal and business use.
⚠️ Beware the tax “recapture” trap – when you sell, the IRS will claw back depreciation benefits. Even if you never claimed it, depreciation reduces your tax basis “allowed or allowable” and is taxed (up to 25%) on sale.
🌐 State taxes vary – Federally, depreciation rules are uniform, but states differ. Many states (e.g. CA, NY) reject federal bonus depreciation perks, meaning you’ll add back deductions on your state return (and states without income tax ignore depreciation entirely).

Depreciation 101: How “Home Cost Recovery” Works (and When It Doesn’t)

Depreciation is a fundamental tax concept: it allows you to recover the cost of a capital asset (like a building) over time through annual deductions. Think of it as writing off the “wear and tear” on a property. Under the tax code (via the Modified Accelerated Cost Recovery System, or MACRS), real estate used for business or investment is depreciated over a set lifespan. For residential rental property, that lifespan is 27.5 years. For non-residential commercial buildings, it’s 39 years. This means each year you can deduct a portion (about 3.636% per year for residential, 2.564% for commercial) of the building’s value from your taxable income.

However, you cannot depreciate property used solely for personal purposes. The IRS explicitly forbids any depreciation deduction on a primary residence or other personal-use property. In tax terms, a home you live in is not “used in a trade or business” nor “held for the production of income,” so it doesn’t qualify for cost recovery. It doesn’t matter that your house physically wears out over time – for tax purposes, personal enjoyment doesn’t count as a deductible expense. This principle has been consistent in U.S. tax law for decades: personal residences are out of bounds for depreciation (just like you can’t deduct the cost of your own food or clothing). The tax benefit of home ownership instead comes through other means (like the mortgage interest and property tax deductions, or the capital gain exclusion when you sell – more on that later), but not depreciation.

Why do people ask about depreciating a home? It’s often because they hear that real estate investors and landlords get big tax write-offs through depreciation. A homeowner might think, “My house is getting older – can I get a tax break for that?” The answer is no for purely personal homes. But the moment your home (or part of it) is used for income-generating activity, it enters the realm of business asset, and the rules change to yes (with conditions). We’ll break down those scenarios – rental use, home office use, and other mixed uses – and how depreciation works (or doesn’t) in each.

Primary Residence Depreciation: No Deduction (Unless You Have a Business Use)

Let’s tackle the simplest case: your principal residence, used 100% for you and your family to live in. Can you deduct depreciation on it? No. Neither the Internal Revenue Code nor IRS regulations allow any depreciation on property held for personal use. The logic is that depreciation is a business expense, not a personal one.

In plainer terms, your primary home is not a tax-deductible asset beyond specific allowed personal deductions (such as mortgage interest or real estate taxes, which are separate). The cost or value of your house itself can’t be written off just because time passes or it needs upkeep. If you paint your living room or your roof shingles wear out, those are considered personal living expenses, not deductible depreciation.

Historical perspective: From the inception of the federal income tax, personal residences have been excluded from depreciation. Only income-producing property qualifies. Over the years, Congress and the IRS have consistently upheld this separation. For example, there’s no “wear and tear” deduction for your own home’s structure in the tax code. Attempts to stretch the rules (like claiming a personal asset as a business one without legitimate use) have been struck down in tax court. The IRS has a long-standing stance: no business use, no depreciation deduction. They even codified that if a property is used partly personal and partly business, you must split the expenses and only the business portion is depreciable. This prevents people from sneaking personal expenses in as deductions.

Bottom line: If your house is just your home (and not used for any income-related purpose), you cannot depreciate it. You cannot write off its purchase price over time, nor deduct for its physical deterioration. That’s the straight answer many homeowners need. But don’t despair – if you’re looking for ways to leverage your home for tax benefits, read on. The key is converting some or all of that home into an income-producing asset (legitimately).

For instance, maybe you’ve started a small business from home or you’re considering renting out a spare room or a second property. In those cases, depreciation becomes relevant and valuable. The next sections cover those scenarios.

Rental Homes: Yes, Depreciation Is a Landlord’s Best Friend

If you own a rental property (including a former home that you’ve converted entirely to rental use), you can and should depreciate it. In fact, U.S. tax law expects you to. When you hold a house for the production of income (i.e. collecting rent), it’s treated as a business asset. Depreciation on rental real estate is one of the biggest tax benefits for landlords:

27.5-Year Schedule: Residential rental buildings are depreciated over 27.5 years under MACRS (straight-line method for real property). This means roughly 3.6% of the building’s value can be deducted each year. It’s like expensing a slice of the property’s cost annually, even while it hopefully appreciates in market value over time. For example, if you bought a rental home for $300,000 (with $60,000 allocated to land and $240,000 to the building structure), you could deduct about $8,727 each year in depreciation on the building. That’s $240,000/27.5. This deduction can significantly offset your rental income, often turning a taxable profit into a paper loss for tax purposes.

Land is Not Depreciable: An important note – when calculating depreciation, you must separate the land value from the building. Land doesn’t wear out (in theory), so it’s not depreciable. Only the improvements (the house, garage, etc.) get depreciated. In practice, you use property tax assessments or appraisals to split land vs building value. Depreciating the full purchase price without removing land is a common mistake to avoid.

Start Depreciating When Placed in Service: Depreciation for a rental starts when the property is “placed in service” as a rental (i.e., when it’s ready and available to rent, even if not yet rented). If you buy a rental property or convert your own home to a rental, the depreciation clock starts at that point, not before. The first year is prorated based on the month placed in service (IRS uses a mid-month convention for real estate).

What Can Be Depreciated: Beyond the building itself, landlords can depreciate capital improvements and certain furnishings or equipment. For example, if you add a new roof or HVAC system (a capital improvement), that cost is added to your property’s basis and depreciated (roof would be depreciated over the 27.5-year schedule as part of the building). Appliances, carpeting, or furniture provided with a rental may be depreciated over shorter lives (5 or 7 years) because they’re not structural components. In recent years, bonus depreciation (100% immediate write-off under the Tax Cuts and Jobs Act of 2017, now phasing down to 80% in 2025) has even allowed landlords to fully deduct many of these shorter-life assets in the first year. However, remember that these perks apply to rental business assets only – not to anything in personal use.

Rental Losses and Passive Activity Limits: Depreciation often creates or increases a net loss on rental property (especially if your mortgage interest and other expenses are high). This loss is real for tax calculations, but whether you can use it depends on passive activity rules. By default, rental income is considered “passive” (unless you’re a real estate professional by IRS definition). Passive losses can only offset passive income (from other rentals or passive ventures), not your salary or other active income. There’s a special allowance: if your income is below ~$150,000 and you actively participate in managing the rental, you may deduct up to $25,000 of rental losses against other income. Otherwise, excess losses carry forward. Depreciation will contribute to these losses – which is great for deferring taxes, but just know you might not use the loss until you have passive income or sell the property. This is a nuance separate from depreciation itself, but important for understanding the full benefit. (In contrast, a primary residence can’t generate a deductible loss at all, since it’s personal.)

Key takeaway: If you’re a landlord or become one, depreciation is not optional – it’s a crucial part of the tax calculus. In fact, even if you fail to claim depreciation on a rental property (perhaps due to an oversight), the IRS deems it “allowable” and will still treat you as having claimed it when you sell (more on that in the recapture section). So you should always take advantage of it during ownership. We’ll later discuss what happens if you didn’t depreciate; there are ways to correct that via IRS Form 3115, but it’s complex. It’s far better to calculate and deduct it each year as you go.

Lastly, note that rental depreciation doesn’t last forever. After 27.5 years, you’ve fully depreciated a residential rental (i.e., you’ve deducted the entire building basis). You can’t depreciate below zero basis. Many long-term landlords hit this point – at which stage the property’s cash flow becomes fully taxable since you have no depreciation left to offset it. However, often by that time, the landlord may refinance, improve the property (adding new depreciable basis), or engage in strategies like a 1031 exchange (swapping for a new property, resetting depreciation). A 1031 like-kind exchange lets you defer taxes (including depreciation recapture) by rolling into a new property – effectively starting depreciation anew on the new asset (with some complicated basis rules). This is a more advanced topic, but it’s one way savvy investors extend the depreciation benefit over multiple properties’ lifespans.

Mixed-Use Homes: Depreciating the Business Portion (Home Offices, Rooms for Rent, and Vacation Homes)

Many homeowners use their dwellings for more than just personal shelter. If part of your home is used for business or rental, that part becomes depreciable. This is where things get nuanced, because you have to allocate between personal and business use and follow special rules (mainly IRC Section 280A and related regulations). Let’s break down common mixed-use scenarios:

Home Office Depreciation (Business Use of Your Home)

If you are self-employed or run a business from your home, you may qualify for the home office deduction. This deduction allows you to write off a portion of many household expenses – including depreciation – corresponding to the part of the home exclusively used for business. For example, if you use a spare room solely as your office or workshop for an at-home business, and that room is 10% of your home’s square footage, then you can depreciate 10% of the home’s building value as a business expense.

Important points for home offices:

Exclusive and Regular Use: The space must be used exclusively for business on a regular basis. A guest bedroom that doubles as an occasional office doesn’t qualify. Section 280A is strict here – exclusive means exclusive. (There are a couple of exceptions, like for home daycares, but generally, any personal use of the area voids the deduction.)

Principal Place of Business: For many, the home office must be the principal place of business (or a place to meet clients, or for certain storage uses) to qualify. If you also have an outside office, the rules get tighter. But assuming you legitimately work from home and have no other fixed location, you pass this test.

Depreciation Method: The portion of the home used as an office is depreciated as nonresidential real property (39-year straight line). This surprises some people – why 39 years instead of 27.5? It’s because the space is not being rented out as a dwelling unit; it’s being used by your own business. So it falls under the category of nonresidential business property. You will calculate the depreciation on, say, that 10% of your home’s basis over 39 years. (If you later stop using the office, depreciation stops at that point for that portion.)

Example: Suppose you own a home worth $300,000 (with $60,000 land, $240,000 building). You use 10% of the area as a qualified home office for your sole proprietorship. Each year, you can claim depreciation of 10% of the building’s cost basis under 39-year MACRS. That’s 10% of $240,000 = $24,000 allocable basis, and annual depreciation ~ $24,000/39 ≈ $615. In addition, 10% of utilities, insurance, etc., are deductible. $615 might not sound huge, but over a decade it’s $6,150 of tax write-off, and every bit helps. Be aware: if you sell your home later at a gain, that $6,150 (or whatever total depreciation you took) will be taxable, even if the rest of your home’s gain is exempt under the home sale exclusion. We’ll cover this in the upcoming section on selling and recapture.

Home Office Simplified Option: Recognizing the complexity of calculating actual expenses and depreciation, the IRS introduced a simplified home office deduction in recent years. This method lets you deduct $5 per square foot of home office space (up to 300 sq ft, so max $1,500 deduction) instead of tracking actual expenses.
- If you use this safe harbor method, you do not depreciate the home office (and you don’t later recapture depreciation for those years). It’s simpler but often yields a smaller deduction than the detailed method – it might be beneficial if your space is small or your income is low. Some taxpayers choose it to avoid the hassle of depreciation calculations and the future recapture. It’s good to know this option exists, especially if you fear the depreciation recapture on a primary home isn’t worth the current deduction. But most business owners with a sizable home office opt for the regular method to get a larger write-off.

No Employee Deduction (2018-2025): A critical note from the Tax Cuts and Jobs Act (TCJA): if you are an employee (W-2) working from home for your employer’s convenience, you used to be able to deduct home office expenses as an unreimbursed employee expense (subject to 2% of AGI limits). TCJA suspended all unreimbursed employee expense deductions from 2018 through at least 2025. So, if you’re simply a remote employee of a company, you cannot deduct a home office at all during these years. No depreciation, no nothing (unless your employer has an “accountable plan” to reimburse you, which is different). This change caught many by surprise after 2018. It may or may not return after 2025 depending on future law changes. But for now, only self-employed persons, independent contractors, or partners can claim a home office deduction. (If you’re both an employee and have a side gig from home, you can still claim for the side gig portion.)

Renting Out Part of Your Home (Room Rentals and Airbnb)

Another mixed-use scenario is when you rent out a portion of your home to others. This could be a spare bedroom you lease to a long-term roommate, or an Airbnb/short-term rental of a room or guest suite, or a duplex where you live in one unit and rent out the other. In these cases, the rental portion is treated like rental property, and depreciation applies to that part of the home.

How it works:

Allocate Space: Typically, you allocate the home’s basis between the part used for rental and the part for personal use, usually by square footage. For instance, if you rent out a bedroom that is 15% of your house’s living area, then 15% of the building value is depreciable as a rental. The remaining 85% is personal (no depreciation). All expenses, from utilities to insurance, similarly get split (some can be directly assigned if specific to the rented space, others allocated).

27.5-Year Depreciation for Rental Part: The rented part of a residence is depreciated on the residential rental schedule (27.5 years) because that part is being used as a dwelling by the tenant. It doesn’t matter that it’s under your same roof; functionally, you’re a landlord for that section. So if our example house ($240,000 building basis) had 15% rented out, that’s $36,000 allocable to rental, and you’d depreciate that over 27.5 years (roughly $1,309 per year deduction).

Short-Term Rentals: If you Airbnb a room or your whole home for part of the year, depreciation gets a little more complex because you must allocate by days of rental use vs days of personal use in the year. Section 280A covers “vacation home” rules: if you rent your home out for less than 15 days in a year, the income is actually tax-free and you don’t deduct expenses (including depreciation) related to those days. (This is sometimes called the “Masters rule” or “Augusta rule,” famously used in Augusta, GA during the Masters golf tournament – people rent their home for a week, pocket tax-free income, but then can’t deduct anything for that period. It’s a quirky exception in the law.)
- If you rent for more than 14 days, you have to report the income and you can deduct expenses proportionally. But if you also use the home personally too much (more than the greater of 14 days or 10% of rental days), it’s considered a personal residence with some rental use, and your deductions (particularly depreciation) are limited to the amount of rental income – you can’t use rental depreciation to create a loss in that scenario. Essentially, you can only break even, not go negative, if personal use is significant. This is meant to prevent folks from turning a mostly vacation home into a big tax write-off. If your personal use is minimal, then you can deduct all allocable expenses and even have a loss (subject to passive loss rules). In any case, depreciation is allocated based on the rental portion and rental time.

Example – Live-in Landlord: You live in a 2,000 square foot house and rent out a 200 sq ft bedroom to a tenant year-round. That’s 10% of the space. If the building basis is $200,000, you’ll depreciate $20,000 over 27.5 years for that room (about $727 per year). You also deduct 10% of shared utilities, etc. The other 90% of the home remains personal – not depreciated. When you eventually sell the house, you’ll have to account for that depreciation taken on the room (recapturing it at sale).

Mixed-use scenarios require good record-keeping. You must maintain what portion of basis was allocated to rental or office use, and track depreciation separately for each portion. Oftentimes, tax software will handle multiple assets (like “House – 15% rental use” as one asset, “House – 10% office use” as another). If the business use stops (e.g., tenant moves out and you reclaim the space, or you close your home business), you stop depreciating that portion and it reverts to personal use (no more deductions). If you later resume business use, you start again (continuing where left off, you don’t reset the basis unless significant time passed and value changed – typically you continue the same asset depreciation schedule).

Section 280A in a nutshell: It’s the law that mostly disallows expenses for the personal use portion of a home and limits deductions for mixed-use homes to prevent abuse. We’ve touched on its key provisions: the 14-day rental exception, the requirement to allocate expenses, the order of deductions (for vacation homes, you deduct things like mortgage interest and taxes that are personal anyway first, then operating expenses, then depreciation last – and only to the extent of remaining rental income if it’s a personal-use heavy property). The main message: you can depreciate the part of your home that’s rented or used for business, but you must meticulously segregate business vs personal use.

Summary of Mixed-Use Depreciation:

If part of your home is business/investment use, that part is depreciable.
Home office portion → depreciate over 39 years (nonresidential use).
Rented portion (long-term tenant) → depreciate over 27.5 years (residential rental use).
Part-year rental (vacation home) → depreciate based on rental-time percentage; deductions might be limited if personal use is high.
Always allocate based on a reasonable method (area, time, or both).
Keep in mind, any depreciation you claim (or could have claimed) for any part of your home will impact your taxes when you sell. We turn to that next, because it’s a critical part of the story.

Selling a Home That Was Depreciated: Depreciation Recapture and Section 121

When you sell a property, any gain is subject to tax. Fortunately, if it was your primary residence for at least 2 of the last 5 years, IRC §121 allows you to exclude a large chunk of gain ($250,000 if single, $500,000 if married filing jointly) from tax. This home sale exclusion is a fantastic tax break for homeowners. However – and this is crucial – Section 121 does not let you exclude any gain attributable to depreciation deductions you claimed (or were allowed to claim) for business or rental use of the home. In other words, depreciation is always “recaptured” separately, even on your personal residence, at the time of sale.

What is Depreciation Recapture? It’s a mechanism where the IRS “recovers” the tax benefit you received from depreciation. During the years you owned the property, depreciation deductions might have saved you taxes (at your ordinary income rate). When you sell, the government says: now it’s payback time on those deductions. Technically, for real estate, depreciation taken is taxed as “unrecaptured Section 1250 gain” – a form of gain that is taxed at a special 25% maximum rate (for federal tax). If you’re in a lower ordinary income bracket, it could be taxed at that lower rate; but if you’re high-income, 25% is the cap (which is between the 15% and 20% long-term capital gains rates and typical ordinary rates). Think of it like a middle tax rate applied to the depreciation portion of your gain.

How it’s calculated: When you sell a property, you calculate your adjusted cost basis (original cost plus improvements minus depreciation taken). Depreciation lowers your basis. So, your capital gain is higher by the amount of depreciation. For a rental, for example, if you bought for $200k and took $50k of depreciation, and sell for $300k, your total gain is $300k – ($200k – $50k) = $150k. That $150k is composed of $50k “depreciation recapture” gain and $100k regular gain. The $50k is taxed at max 25%, the $100k at 0/15/20% depending on your bracket.

For a primary residence that had a business use portion: Section 121 can exclude the non-depreciation gain for the personal portion. But any depreciation you took after May 6, 1997 (a cut-off date in the law) on portions of the home (e.g. for a home office or rental part) cannot be excluded. You will pay tax on that part. Example: You sell your home and realize a $100,000 total gain. It was your main home so normally that’s under the $250k/$500k limit – so you’d think no tax. But suppose you had a home office and over the years you claimed $10,000 of depreciation for that office. That $10,000 portion of gain is not covered by the exclusion – you’ll pay up to $2,500 (25%) in federal tax on it. The remaining $90,000 of gain can be excluded tax-free if you meet the conditions.

If the property was partially rental (like duplex or you rented a room), you usually have to allocate the sale price and basis between the part that was your residence and the part that was rental. The gain on the personal part can qualify for Section 121 exclusion (if you meet the ownership/use tests), and the gain on the rental part does not (unless you also lived in that rental part for the required time, which gets tricky – usually if it’s a clearly separated unit, that portion doesn’t get the exclusion, but if it’s same dwelling unit and you rented a room, the exclusion can cover the personal-use portion of the space’s gain). However, regardless, any depreciation on the rental portion is taxed. The tax code ensures you can’t double-dip: you don’t get to use depreciation to save taxes and then also avoid tax on the back end.

Allowed or Allowable – a critical concept: The IRS uses the term “depreciation allowed or allowable.” This means even if you did not claim depreciation deductions that you could have, the IRS treats it as if you did. Your basis must still be reduced by the depreciation you should have taken, and you’ll be taxed on it at sale. In practice, if you forgot or chose not to depreciate your rental/home office, you’re in a worse position: you got no benefit during ownership, but you’ll still get hit with the tax when you sell. The tax courts have upheld this, and it’s codified in regs. So please, if you’re entitled to depreciation, take it! Otherwise, you’re leaving money on the table and potentially facing a surprise tax with no offsetting past savings.

What if you find yourself in that situation (missed depreciation)? The remedy is filing a form (Form 3115, Change in Accounting Method) to catch up on prior depreciation as a one-time adjustment. It’s a complex filing often needing a tax professional’s help. But it can allow you to claim all missed depreciation in one year (without amending every return) and then moving forward correctly. It’s far better not to need this – by doing it right from the start.

Depreciation Recapture Rate: As mentioned, for real estate, the recapture is generally at a maximum 25% rate federally. This is distinct from other types of depreciation (like equipment) which can be taxed entirely at ordinary rates. Real estate got a bit of a break in that straight-line depreciation (which is what we use for real property) is taxed at this capped rate instead of full ordinary rates (which could be 37% for high earners). So in a way, that’s an incentive: you deduct depreciation at perhaps your 37% rate as an expense, and later pay it back at 25%. There is a timing benefit and potentially a rate arbitrage benefit.

Partial conversions (non-qualified use): One more nuance: If you convert a rental property into your primary residence for a couple years before selling (trying to use Section 121 exclusion), current law will not let you exclude gains allocable to periods of “non-qualified use” (after 2008). Essentially, you can’t move into a rental and immediately sell it tax-free; the gain that built up during rental years is pro-rated and remains taxable. But depreciation from those rental years is still recaptured separately as well. Conversely, if you move out of your primary home and turn it into a rental for a while before selling, you can still use Section 121 if you sell within (generally) 3 years of moving out, but again any depreciation during the rental period is taxable. This is to say, depreciation will follow the property no matter what transitions happen between personal and rental use.

Recap: If you depreciated any portion of your home (because it was used for business/investment), plan for depreciation recapture when you sell. It’s not a reason to avoid depreciating – the tax hit is usually smaller than the benefit you gained (and you had use of that tax savings in the interim). But it is something to be aware of so you’re not blindsided. A lot of homeowners get a surprise at sale: “Why am I being taxed $X? I thought my home sale was tax-free.” And the answer is often, “that’s the depreciation you took (or could have taken) for your home office or rental – the IRS wants its share back now.”

Pros and Cons of Claiming Home Depreciation

If you’re eligible to deduct depreciation on a home (via rental or business use), is it always a good idea? Generally yes, but let’s weigh the advantages and disadvantages. This can help those on the fence, especially about things like the home office deduction, decide what’s best.

Pros of Depreciating Your Home	Cons of Depreciating Your Home
Immediate Tax Savings: Lowers your taxable income each year, often significantly. This can mean paying less tax (or getting a bigger refund) annually, improving cash flow.	Future Tax Liability (Recapture): Reduces your home’s tax basis, so you’ll pay tax on that portion when you sell. Depreciation is taxed up to 25% federally upon sale – effectively deferring, not eliminating, tax.
Non-Cash Expense: You get a deduction without spending money out-of-pocket each year. It’s paper expense that reflects wear-and-tear, letting you benefit now while the asset hopefully appreciates in real life.	Complexity & Record-Keeping: Requires careful calculations, allocation (if partial use), and tracking of accumulated depreciation. You’ll need good records and possibly professional help to do it correctly.
Aligns with True Business Use: If part of your home is genuinely used for income, depreciation rightly matches the expense of that asset’s use against the income. It’s an economically accurate deduction subsidizing business use of personal assets.	Potential for Errors: Mistakes like depreciating the wrong basis (e.g., including land), or using the wrong recovery period, can trigger IRS issues. Also, if you forget to depreciate, fixing it later is cumbersome (Form 3115).
Leverage & Growth: For rental properties, depreciation can create tax-paper losses that you can carry forward to offset future rental income or gain. It effectively allows you to grow your real estate portfolio with minimized tax in early years.	Passive Loss Limits: In rentals, depreciation might create a loss you can’t immediately use (if you have no other passive income and are above the income threshold). The tax savings could be delayed until you have profit or sell.
Strategy Opportunities: You can pair depreciation with strategies like 1031 exchanges to defer taxes long-term, or cost segregation to accelerate deductions on parts of the property. It’s a key part of real estate tax planning.	Reduced Home Sale Exclusion: If the property was your home, any depreciation means that portion of gain is taxable. It slightly erodes the value of the Section 121 exclusion for homeowners because that exclusion won’t cover the depreciation amount.

Overall, if you’re entitled to depreciation, the pros usually outweigh the cons. The tax deferral and savings now are valuable, and recapture later often comes at a lower effective rate (and after years of saving, which has time value). The cons are manageable with good planning – just be aware of them. Some homeowners opt not to claim a home office depreciation (using the simplified method or foregoing it) to avoid the hassle and future recapture on their main home. That’s a personal decision: it sacrifices some current benefit for simplicity and maybe peace of mind. But purely from a financial standpoint, claiming legitimate deductions is usually beneficial in the long run.

State-by-State Nuances in Depreciation Deductions

Federal tax law governs depreciation rules uniformly across the U.S., but when it comes to state income taxes, the treatment can differ. Some states follow the federal rules closely, while others make taxpayers add back certain depreciation deductions or limit them. This typically matters when states “decouple” from federal provisions like bonus depreciation or have their own depreciation schedules. Here’s a look at a few notable examples:

State	Home Depreciation Tax Nuances
California (CA)	Generally conforms to basic MACRS depreciation (27.5-year for residential rentals), but disallows federal bonus depreciation and limits Section 179 expensing on personal state returns. CA requires you to add back any bonus depreciation taken federally, so you end up depreciating assets more slowly for CA purposes. Also, any depreciation recapture on sale is taxed at California’s high ordinary income tax rates (which can be 9-13.3% at the top end) since CA doesn’t have special capital gain rates. In short, expect a higher state taxable income in years you claim big depreciation write-offs federally.
New York (NY)	Like CA, New York decouples from federal bonus depreciation for individual taxpayers. NY taxpayers must add back bonus depreciation on their state return and then depreciate assets on a normal schedule. Section 179 expensing is allowed up to federal limits for many businesses, but bonus is a no-go. When you sell property in NY, depreciation is recaptured and taxed at NY’s income tax rates (up to ~10.9% for top bracket, plus if you’re NYC resident, city tax ~3-4% more). So, while you enjoy federal depreciation deductions, be prepared for adjustments on your NY return.
Texas (TX)	Texas has no state income tax. That means there’s no state depreciation deduction or recapture to worry about at all. Depreciation is purely a federal tax affair for Texans (and similarly for residents of Florida, Tennessee, and other no-income-tax states). Note that this doesn’t affect property taxes – local property tax assessments in Texas don’t use your federal depreciation (they’re based on market value). But from an income tax perspective, Texas landlords effectively get to use all the federal rules with no state modifications.
Pennsylvania (PA)	Pennsylvania’s tax code is an outlier in some ways. PA does not fully conform to federal depreciation methods. For PA personal income tax, depreciation must often be calculated using straight-line methods if federal accelerated depreciation (like bonus) was used, and there’s a cap on Section 179 expensing (historically $25,000, much lower than the federal $1 million+). So PA landlords might have two sets of asset basis and depreciation records – one for federal, one for PA. PA essentially spreads deductions over longer periods, which can mean higher state taxable income in earlier years. Depreciation recapture on sale is taxed at PA’s flat income tax rate (currently ~3.07%), but since PA gave fewer depreciation benefits, the state gain might be correspondingly larger.
Illinois (IL)	Illinois generally follows federal MACRS for regular depreciation but does not allow 100% bonus depreciation on the state return. Illinois requires an income adjustment adding back the federal bonus amount, then provides a separate deduction as the asset depreciates over time (so you eventually get the deductions, just not front-loaded). Section 179 is allowed up to the federal limit, which helps business owners. Illinois taxes depreciation recapture at its flat 4.95% income tax rate. So while Illinois conforms to a large extent, the bonus depreciation add-back is a key difference for investors taking accelerated write-offs federally.

In summary: If you’re claiming depreciation on a home for federal taxes, check your state’s rules. Many states will make you calculate depreciation differently or disallow rapid depreciation (like bonus). This can affect your state tax bill each year and when you sell. States like New Jersey, Massachusetts, Hawaii, and others also have various levels of decoupling similar to the ones above (often requiring add-backs or using older depreciation systems). Always maintain records of depreciation that are usable for state calculations as well – sometimes software will do it for you, but it’s good to be aware. On the flip side, if you live in or own property in a state with no income tax, you effectively get the full benefit of federal depreciation with no state catch (which is a nice perk).

One more nuance: if you live in a different state than where the rental property is, you might have to file a nonresident return for the state the property is in, reporting rental income and depreciation there. Each state will tax the income from property within its borders, using its own depreciation rules for that calculation. And your home state might give a credit for those taxes. It gets intricate in multi-state situations, but the core concept is the same: federal depreciation rules are the baseline, state rules can modify them.

Examples: Depreciation Scenarios to Illustrate the Rules

To tie all this together, let’s go through a few realistic examples:

Example 1: No Business Use – Personal Home Only
Maria owns a home that she and her family live in, and they do not use any part of it for business or rental. She asks if she can deduct depreciation because the house is aging and needed a new roof. Answer: No. Maria’s house is personal-use. The new roof is a home improvement that adds to her cost basis, but it’s not deductible or depreciable. She’ll get no depreciation deductions at all. When Maria sells the home, she can hopefully use the Section 121 exclusion to avoid tax on the gain (if it was her primary residence 2+ years), and the improvements she made (roof) will increase her basis to reduce gain. But throughout ownership, no depreciation relief for Maria.

(Takeaway: Most homeowners like Maria, with purely personal homes, won’t deal with depreciation at all on their taxes.)

Example 2: Rental Property – Full Depreciation and Recapture
John purchases a second house as a rental property for investment. Purchase price $300,000, of which $50,000 is land, $250,000 building. Each year John depreciates the $250,000 over 27.5 years, getting about $9,090 deduction per year. In the first couple of years, the rental breaks even in terms of cash flow, but depreciation creates a tax loss, which John uses to offset other passive income from another rental he has (or if John’s income is low enough, maybe even his regular income up to that $25k allowance). Fast forward 10 years: John has deducted roughly $90,900 in depreciation. The property’s adjusted basis is now $300k – $90.9k = $209.1k.

He sells the property for $400,000. His total gain = $400k – $209.1k = $190.9k. Of that, $90.9k is depreciation recapture, taxed at 25%. The remaining $100k is taxed as capital gain at 15% (or 20% if John’s in the top bracket). So John pays about $22,725 (25% of $90.9k) + $15,000 (15% of $100k) = ~$37,725 in federal tax on the sale. Had he lived in the home and sold it as a primary residence, he could have excluded the $100k gain, but because it was a rental (non-qualified use), no exclusion applies.

Regardless, he had the benefit of $90k of deductions over the years which saved him perhaps ~$25k in taxes at the time (assuming ~28% average rate), and those savings might have been reinvested. Even with recapture, he likely came out ahead due to time value of money and the capital gain portion still being taxed favorably. If John wanted to avoid that immediate tax, he could consider a 1031 exchange to defer both the $37k tax and continue investment – but that’s another story.

Example 3: Home Office in a Primary Home
Sarah is a freelance graphic designer who owns her home. She uses a spare bedroom exclusively as her design studio (20% of the home’s area). Her home’s building basis is $200,000. Each year, she deducts home office expenses including $200,000 * 20% / 39 ≈ $1,026 in depreciation. After 5 years, she’s taken ~$5,130 in depreciation for the office. Now she sells the house. Assume a gain on sale of $100,000. Sarah meets the use/ownership tests for Section 121 (it was her main home). She can exclude $100k of gain… except she must recognize the $5,130 that was depreciation. So $94,870 of the gain is tax-free, and $5,130 is taxed at 25%, costing about $1,282 in tax. Sarah doesn’t mind – she saved more than that in taxes over 5 years from the write-offs (her marginal rate was 22%, so $5,130 * 22% ≈ $1,129 saved).

The net effect is she basically got an interest-free “tax loan” from the government: save $1,129 over time, pay $1,282 later. Not huge, but her business also got to use that extra cash in those years. If she had used the simplified method instead, she would have deducted maybe $1,500 per year ($5 x 300 sq ft assuming her office is that size) = $7,500 total, which actually is more than $5,130 – but note, simplified method caps at 300 sq ft; if her 20% was larger square footage, the simplified might have been less than actual. Importantly, with simplified, she’d have $0 to recapture. It’s a trade-off. In her case, the simplified gave a slightly bigger deduction and zero recapture, which could be a reason to choose it. If her office was bigger, the actual-expense method might yield a bigger deduction but then involve depreciation tracking.

Example 4: Mixed Rental and Personal (Duplex scenario)
Theodore buys a duplex for $500,000. He lives in one half as his primary residence and rents out the other half. Each unit is exactly 50% of the property. Land value is $100,000, building $400,000. Theodore’s depreciation on the rental unit is $200,000 (half the building) over 27.5 years (~$7,273/yr). The half he lives in is not depreciated at all. After 3 years, Theodore moves out and sells the entire property for $600,000. During ownership, he took about $21,819 in depreciation on the rental half.

Now on sale, he must divide the sale price and basis between the two halves (likely 50/50). Say the rental half sells for $300k (half of $600k) with an adjusted basis of $200k – $21.8k = ~$178.2k. So gain on the rental half is $300k – $178.2k = $121.8k, all taxable (no exclusion because that unit was never his residence). The depreciation portion $21.8k is taxed at 25%, the remaining $100k at capital gains rates. The half he lived in sells for $300k with basis $200k (not depreciated). Gain $100k on that half. He qualifies for Section 121 exclusion, so that $100k is tax-free. In sum, Theodore pays tax only on the rental half’s gain.

He enjoyed depreciation deductions while renting (which offset his rental income nicely), and when selling, only the rental portion’s gain was taxed. This illustrates how powerful the home sale exclusion is – the personal portion completely escapes tax. If Theodore had rented both halves and not lived there, he’d be paying tax on the entire $200k gain. By living in one half, he shielded a lot of gain, effectively making an investment and a home combined.

These examples underscore the key points: depreciation is great during ownership for the business portion of a home, but you have to account for it at sale. Primary residences alone don’t get depreciation, but once you mix in business use, you must handle the before-and-after carefully.

Common Mistakes to Avoid (Depreciation Pitfalls)

Depreciating Land or Too Much Basis: Remember, land is non-depreciable. Always subtract land value from your home’s cost basis when calculating depreciation. If you don’t, you’re over-claiming depreciation, which can come back to bite you (you’d have to recapture it and possibly face penalties for overstating deductions). Use a reasonable method to value land vs building (county assessor’s ratio, appraisal, etc.). Also, exclude personal property that’s handled separately.
Not Taking Depreciation at All: As emphasized, not claiming depreciation when you’re entitled (like on a rental) doesn’t avoid anything – it only hurts you. The IRS will reduce your basis as if you took it. You lose the yearly tax benefit and still owe recapture. This often happens with DIY landlords who didn’t realize they should depreciate. The fix (Form 3115) is doable but tedious – often requiring a tax pro. Save yourself the trouble and claim it annually.
Using Wrong Recovery Period or Method: For instance, depreciating a home office over 27.5 years instead of 39, or a rental property using an accelerated method not allowed for real estate (e.g., somebody tries to use 200% declining balance by mistake – note: MACRS for residential rental is straight-line by law). Using the wrong convention or life can misstate your deductions and complicate tax filings. Always verify the proper class life: 27.5 res rental, 39 nonresidential, 5 or 7 for appliances, etc., and straight-line for real property (MACRS does allow a 200% declining for personal property, but not for the building). Tax software typically handles this if you input asset type correctly.
Improper Allocation in Mixed-Use: If you have a mixed-use home, carefully calculate the business-use percentage. Don’t guess – measure square footage, count rental days, etc. And don’t inflate it. The IRS can challenge an excessive home office percentage (like claiming 50% of your house is an office when it’s clearly not). Use honest numbers and keep evidence (floor plan, rental calendar).
Failing to Adjust Depreciation After Changes: If you renovate or add an addition to the home that is partly business, that’s additional depreciable basis – don’t forget to start depreciating the new improvement separately (often over its own class life if different, or added to building basis). Conversely, if part of the property is taken out of service (you stop renting a room), you need to stop depreciation for that part. Life events change asset use – reflect that in your tax depreciation schedules.
Not Planning for Recapture: Many people are shocked by the tax bill from depreciation recapture. A mistake is assuming a home sale will be completely tax-free under the exclusion, ignoring the depreciation. This can throw off your financial planning when selling your house. Always tally up your depreciation (allowed/allowable) before selling and anticipate that tax. It might influence when or how you sell (maybe you do a 1031 exchange for rentals, or if it’s a home, at least you won’t be surprised when a portion is taxed). Being blindsided can be painful, so model it out.
Home Office Trap for Employees: Claiming a home office as an employee in 2022, for example, is a mistake – it’s not allowed (post-TCJA). Some uninformed taxpayers continue to try deducting expenses on Schedule A as miscellaneous deductions, which are disallowed until 2026. Don’t do this; it can flag your return. If you’re an employee, focus on getting reimbursements or wait for law changes.
Mixing Up Personal and Rental Expenses: With partial rentals, there’s a specific order to deduct things like mortgage interest and property taxes. The personal portion of those can still be deducted on Schedule A (subject to SALT limits etc.), while the rental portion goes on Schedule E. Depreciation is solely a Schedule E (or business schedule) item. Make sure not to deduct the same expense in two places. For instance, if you rent out 50% of your home, you split the property tax 50/50 – half on Schedule E, half potentially on Schedule A (if you itemize). Don’t double count or you’ll be depreciating an expense you also claimed personally (not allowed).

By avoiding these pitfalls, you ensure you’re getting the intended benefits of depreciation without running afoul of IRS rules or missing out on savings.

Related Tax Concepts and Entities

To fully grasp home depreciation, it’s helpful to be aware of some related tax concepts, laws, and even key terms often discussed in this context:

MACRS (Modified Accelerated Cost Recovery System): The depreciation system in place since 1987. It dictates the recovery periods and methods for different assets (like our 27.5-year and 39-year lives). It was an evolution from earlier systems like ACRS (Accelerated Cost Recovery System, early ‘80s) and straight-line methods before that. Real estate has gone through changes (e.g., in 1981, the law briefly allowed super-fast depreciation on real estate, which was later slowed down to prevent abuse).

Section 167/168: These sections of the Internal Revenue Code cover depreciation deductions in general (§167) and the MACRS rules (§168). For deep tax law readers, that’s where the magic formulas and tables are defined.

Section 179 Expensing: Mentioned a few times – it allows immediate write-off of certain property instead of depreciating. It mostly applies to equipment, machinery, and in some cases qualified real property improvements (like improvements to nonresidential property). Importantly, §179 cannot be used to write off the cost of residential rental buildings or the main home structure. You can’t §179 a rental house purchase. You could §179, say, a new HVAC in a nonresidential building or some fire alarm system, but for our purposes, Section 179 is not how you depreciate a personal home or rental property itself (states often differ on this as we saw).

Tax Cuts and Jobs Act (TCJA) 2017: This law impacted depreciation by introducing 100% bonus depreciation (through 2022; now slowly reducing), increasing Section 179 limits, and as noted, eliminating unreimbursed employee expenses (affecting home office for employees). It also shortened the depreciation life of qualified improvement property (QIP) in commercial buildings to 15 years (and made it bonus-eligible) via a fix in 2020. TCJA didn’t change the core 27.5/39 for buildings but made writing off certain components of property faster. Many rental owners took advantage by doing cost segregation studies (identifying parts of a rental house like appliances, landscaping, etc., that qualify for faster depreciation or bonus). TCJA gave a huge incentive for that. While a primary homeowner couldn’t care less (no depreciation anyway), a rental owner gained new opportunities.

Passive Activity Rules (Section 469): We discussed this in rental context. It’s the reason some folks can’t use their rental losses currently. Real estate professionals (who spend the majority of their time in real estate businesses and meet hour requirements) can avoid the passive classification and use losses fully – a tax planning point if someone makes a living off real estate, they can maximize depreciation benefits across properties.

Basis Step-Up at Death: Not a pleasant topic, but relevant: if you keep a property until you die, the heirs get a stepped-up basis to fair market value. This effectively wipes out depreciation recapture for tax purposes (and the deferred capital gain). In other words, depreciation claimed during your life will never be taxed if the property passes through your estate and gets a fresh basis. Some very long-term landlords plan to “buy, depreciate, never sell” and then let their kids inherit, so that neither they nor the kids ever pay the recapture. It’s an ultimate tax deferral strategy (often paired with 1031 exchanges to keep rolling the asset without selling). Of course, life and investment needs don’t always align to hold forever, but it’s good to note how the system works in that scenario.

Notable Court Cases: One example is Bolton v. Commissioner (1980s) which dealt with how to allocate expenses (interest, taxes) in a vacation home rental scenario under Section 280A. The IRS wanted one method (allocate based on total days in year), taxpayers wanted another (based on rental vs total days used). The courts’ resolution and a subsequent law change clarified the allocation. While the details are arcane, the bigger point is that there have been many court cases cementing the boundaries of home depreciation and related deductions. Another is cases that uphold “allowed or allowable” – e.g., Allen v. Commissioner where the court didn’t let a taxpayer off the hook for not claiming depreciation. These cases underscore that the IRS and courts interpret the law strictly: if you had a business use, you should have depreciated, period.

IRS Publications and Resources: The IRS provides Pub 527 (Residential Rental Property) which is a great guide for average landlords on how to depreciate and handle rental homes, and Pub 587 (Business Use of Your Home) for home offices. These lay out worksheets for calculating deductible percentages, depreciation, etc. Seasoned tax pros might go straight to code and regs, but these pubs are extremely useful for anyone dealing with home depreciation topics for the first time.

GAAP vs Tax Depreciation: Minor note – if you ever see discussions in accounting, depreciation for book purposes (GAAP) might be done differently (different life or no salvage value, etc.). But for tax, you must use the tax rules (MACRS or ADS if required). Just clarifying in case someone hears different depreciation rates in a non-tax context.

By understanding these related concepts, you build a topical authority around home depreciation. It’s not just one rule; it’s an intersection of several tax principles. We’ve now covered the main question and its branches thoroughly.

FAQs – Frequently Asked Questions about Home Depreciation

Q: Can I depreciate my house if I live in it?
A: Not for personal use. Depreciation is only for business or investment use of property. If the home is purely your residence (no rental, no home office), you cannot claim depreciation.

Q: Is depreciation mandatory for a rental property?
A: It’s highly recommended. The IRS will assume depreciation was taken (“allowed or allowable”) when you sell, regardless. To get the benefit, you should claim it each year on a rental.

Q: How do I calculate depreciation on a home used for rental?
A: Determine the building’s value (purchase price minus land value), then depreciate that over 27.5 years (straight-line). For example, $275,000 building basis gives $10,000 per year depreciation.

Q: Can I use accelerated or bonus depreciation on my residential rental?
A: The building itself must be straight-line 27.5-year (no faster way). However, components like appliances, furniture, or landscaping may qualify for bonus depreciation or shorter life under current law.

Q: What happens if I don’t claim depreciation on a rental property?
A: Your taxable basis still shrinks as if you did. When you sell, you’ll owe tax on the depreciation you could have taken. You also missed out on yearly tax savings. It’s a lose-lose situation.

Q: Does a home office deduction affect the tax-free gain when I sell my house?
A: Only a little. You can still exclude the main home gain under Section 121, but any depreciation claimed for the office is taxed (depreciation recapture at up to 25%). You won’t pay capital gains on the rest if it’s within $250k/$500k limits.

Q: Do I have to recapture depreciation if I convert a rental into my primary residence?
A: When you eventually sell, yes – all depreciation taken will be taxed (cannot be excluded). Also, any gain attributable to the rental period (non-qualified use after 2008) will be taxable, not covered by the home sale exclusion.

Q: How do states differ in handling home depreciation?
A: Most states start with federal income but often require adding back things like bonus depreciation. Some (like CA, NY) don’t allow special depreciation perks, so you effectively use normal depreciation for state taxes. A few have no income tax (so no issue at all).

Q: Can I claim home depreciation on my state taxes if I couldn’t on federal?
A: Generally no. If it’s not allowed federally (e.g., personal home), states won’t allow it either. States may be stricter, not looser, on depreciation. They might reduce or delay depreciation deductions, but not create new ones for personal assets.

Q: What if I rent my home for a short period (like on Airbnb)?
A: If it’s under 15 days a year, you don’t report the income and can’t deduct anything (including depreciation) – tax-free income. If more, you allocate expenses including depreciation by rental days vs personal days. You can depreciate for the rental period proportionately.

Q: Does depreciation affect my property’s market value or property tax?
A: No. Depreciation is just a tax concept for income taxes. It doesn’t change the market value (homes often appreciate) or how your local property tax is calculated. It won’t reduce your property tax bill; it only helps on income tax for business use.

Q: Are there any circumstances where I can depreciate a primary residence?
A: Only if part of it is used for income (rental or business). There’s no general depreciation for an owner-occupied home. One rare scenario: if you have a home daycare, you can depreciate the portion of time/space used for daycare (even if not exclusively used) as allowed by special rules in Section 280A.

Q: What is “unrecaptured Section 1250 gain”?
A: That’s the tax term for gain from depreciation on real estate. It’s “unrecaptured” because you got the deductions already. It’s taxed at a max 25% rate. This is the portion of gain on real property attributable to depreciation that’s being recaptured.

Q: If I die owning a depreciated home, what happens tax-wise?
A: The property gets a step-up in basis to its current value for your heirs. That means previous depreciation isn’t taxed (recapture is forgiven at death). Your heirs start fresh as if they bought the property at market value. (Estate tax could apply if very large estate, but income-tax-wise, depreciation recapture doesn’t carry over after death.)