Rental Property Depreciation Rules
Residential rental real property is generally recovered over 27.5 years, straight line, using the mid-month convention. Whether a building qualifies depends on an 80 percent dwelling-unit income test in §168(e)(2)(A). Transient lodging is excluded from that definition. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Residential rental property is a building or structure if 80% or more of gross rental income is from dwelling units.
- Hotel, motel, and other transient establishments are not dwelling units when more than half the units are used on a transient basis.
- The building is generally 27.5-year MACRS property; ADS is 30 years for property placed in service after 2017.
- Land is not depreciable. Site work and in-unit personal property can have shorter lives when the facts support that treatment.
- A clubhouse used as a rental office is nonresidential real property, recovered over 39 years, in the ATG residential matrix.
Section 168(e)(2)(A) defines residential rental property as a building or structure if 80 percent or more of the gross rental income from that building or structure for the taxable year is rental income from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations, but does not include a unit in a hotel, motel, or other establishment more than one-half of the units in which are used on a transient basis. If any portion of the building is occupied by the taxpayer, the rental value of that portion counts in the test.
The GDS recovery period for residential rental property is 27.5 years, using the straight-line method and the mid-month convention. Under ADS, the period is 30 years for property placed in service after 2017 (Publication 946). An electing real property trade or business must use ADS for its residential rental property, and that property is then not bonus-eligible.
Publication 527 (2025) is the IRS explanation for residential rental property. It lists typical rental-property classes used with dwellings — for example appliances, carpets, and furniture used in rental property as 5-year GDS / 9-year ADS, and roads, shrubbery, and fences as 15-year GDS / 20-year ADS. Those examples are IRS explanations, not a holding that every carpet in every house is 5-year property. Classification still depends on the facts and Treas. Reg. §1.48-1.
The IRS Cost Segregation Audit Techniques Guide’s residential rental matrix states that a rental office or clubhouse building is nonresidential real property recovered over 39 years, even when it sits on a multifamily site. Most §1245 property used with residential rentals is discussed there under asset class 57.0 (5-year). The ATG is examiner guidance, not law, and each matrix says it reflects that industry’s general facts.
This page is educational information, not tax advice. Mixed-use buildings, short-term rentals, and assisted-living or student-housing facts need a CPA’s reading of the 80 percent test. This page does not classify any reader’s property.
The 80 percent dwelling-unit test
The test is applied to the building or structure, using that year’s gross rental income. A building can change classification if the mix of dwelling and non-dwelling rents changes. The statute looks at the taxable year, not at the year the building was constructed.
Transient lodging is excluded from the dwelling-unit definition when more than half the units in the establishment are used on a transient basis. Hotels are generally 39-year nonresidential real property for that reason. A long-term apartment building is the core 27.5-year case.
Owner-occupied portions count at rental value. A two-family house in which the owner lives in one unit still includes that unit’s rental value in the denominator and numerator analysis. Publication 527 walks through mixed-use residences.
What a study still does
Inside a qualifying residential rental building, personal property and land improvements can still have shorter lives when the facts and the regulations support that treatment. Appliances and strippable floor covering are the clearer personal-property candidates in the residential matrix. Cabinetry, unit wiring, and interior partitions often stay with the dwelling.
AmeriSouth XXXII, Ltd. v. Commissioner, T.C. Memo. 2012-67, is a caution that aggressive component lists in garden apartments often remain with the 27.5-year buildings. That result is fact-specific to those apartments. It is not a rule that residential finishes can never be personal property, and it is not restated here as a holding on every item.
Land must still be removed. Driveways, sidewalks, and fences are typical 15-year class 00.3 candidates unless an activity class overrides. General grading that is part of the land stays with land.
Separate buildings on one site
A multifamily closing can include more than one building class. Dwelling buildings may be 27.5-year property while a leasing clubhouse is 39-year nonresidential real property. The ATG residential matrix draws that line. The matrix is not a statute.
Each building has its own mid-month placed-in-service month if the phases opened on different dates. Personal property in the dwellings and in the clubhouse still feeds the mid-quarter test for that year.
Do not average 27.5 and 39 into one blended life. The statute assigns periods by building class, not by campus.
Bonus depreciation and rentals
The 27.5-year building is not bonus-eligible. Shorter-lived components can be, if they are qualified property and the acquisition-date rules are met. As of October 16, 2026, the rate is 100 percent for qualified property acquired after January 19, 2025.
Used-property purchases of an apartment community can include used personal property. Related-party and predecessor-use limits still apply. See the eligibility and related-party pages.
Section 179’s active-conduct test can exclude some rental activities even when §167 depreciation is allowed. Do not assume every appliance in a rental can be expensed under §179.
Sources
- 1
- 2IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 3
- 4IRS Publication 5653 — Cost Segregation Audit Techniques Guide (rev. 2-2025)(opens in a new tab)
Written for IRS examiners. The guide states it is not an official pronouncement of law and cannot be cited as authority. It predates the July 2025 law.