Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Income — Rental and Schedules K-1

Depreciation

Factors Affecting Depreciation

The cost of property with a useful life of one year or more and used in a trade or business or held for the production of income is recovered by allowing an annual deduction called depreciation.

Depreciable property includes buildings, machinery, furniture, equipment, appliances, vehicles, and any cost for additions or improvements to the rental property. However, the value of land is not depreciable, so the cost of clearing, grading, planting, or other land improvements are also not depreciable.

Depreciation allows the taxpayers to deduct some of the cost of the property each year on their tax return. Taxpayers should claim the correct amount of depreciation every year. Taxpayers who do not claim the depreciation they are entitled to must still reduce their basis in the property by the amount of depreciation that they could have deducted.