Depreciation for residential rental property is typically calculated using which method?

• A. Double-declining balance
• B. Straight-line depreciation over 27.5 years for building
• C. Accelerated depreciation
• D. Units of production

Answer: (B)

Depreciation for residential rental property is calculated using a straight-line method that spreads the cost of the building evenly over a fixed recovery period. Under IRS rules (MACRS), the building portion of a residential rental property is depreciated over 27.5 years. This means you take the cost allocated to the building (not the land) and divide it by 27.5 to get the annual deduction. Land isn’t depreciable, so only the building’s value is included in the depreciation base.

Other methods like double-declining balance or accelerated depreciation imply faster write-offs, but they aren’t used for residential rental property’s depreciation. Units of production isn’t applicable to real estate, since there’s no production output to bases deductions on. So, the standard approach is straight-line depreciation over 27.5 years for the building.