- 1). Determine the rental property's building value. Land isn't depreciated according to the IRS, and thus the rental property's depreciation value is calculated based on the value of the structure on the property. Subtract the land value from the total purchase price to find the value of the building on the property.
- 2). Apply the current "useful life" value as stated by the IRS. As of January 2011, the IRS states that rental property has a useful life of 27.5 years. This is based on the IRS publication 946 which was last released in 2009.
- 3). Divide the building value by the useful life value to determine the amount to depreciate rental property each year. For the example, divide $350,000 by 27.5. This results in an annual depreciation amount of $12,727.28.
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