Don’t Overlook Depreciation – A Key Tax Benefit for Rental Property Owners

Recently, I discovered that some of our owners at Beaufort Rentals may be accidentally overlooking one of the most valuable tax deductions available to them—depreciation. If you’re handling your own taxes or using online tax software like TurboTax, it’s surprisingly easy to miss. And missing out on depreciation could mean leaving thousands of dollars on the table each year.

What Is Depreciation?

Depreciation is a non-cash expense that allows you to deduct the cost of your rental property over time due to wear and tear. Even though your property may be gaining value in the market, the IRS allows you to write off a portion of its cost every year, reducing your taxable income.

For residential rental properties, depreciation is spread out over 27.5 years under the IRS’s Modified Accelerated Cost Recovery System (MACRS).

How Much Can You Deduct?

The amount you can deduct each year is based on:
✅ The purchase price of the property (excluding land)
✅ The cost of capital improvements (major upgrades, not routine repairs)
✅ IRS depreciation schedules

For example, if you bought a rental property for $275,000, with $225,000 allocated to the building (excluding land), your annual depreciation deduction would be:

🔹 $225,000 ÷ 27.5 years = $8,182 per year

That means $8,182 deducted from your taxable income, which can translate into real tax savings.

Why Is Depreciation So Important?

✔️ Lowers Your Taxable Income – You’ll owe less in taxes each year.
✔️ Increases Cash Flow – More money stays in your pocket.
✔️ Compounds Over Time – Over several years, this can add up to tens or even hundreds of thousands of dollars in savings.
✔️ IRS Assumes You Took It – Even if you forget to claim depreciation, the IRS will assume you did when you sell, and you may still owe depreciation recapture tax on the amount you should have deducted.

Have You Been Claiming Depreciation?

If you’re unsure whether you’ve been taking depreciation, it’s worth checking your past tax returns. Many rental property owners, especially those using DIY tax software, mistakenly overlook it or don’t enter their property correctly in their tax return.

If you’ve missed depreciation in previous years, there’s a way to catch up without amending old returns. The IRS allows you to file Form 3115, which lets you claim missed depreciation all at once.

Talk to a Tax Professional

Every investor’s situation is unique, and tax laws can be complex. If you’re unsure whether you’re maximizing your tax benefits, consider speaking with a tax professional who understands rental real estate. Taking full advantage of depreciation could mean more money in your pocket and a stronger return on your investment.

At Beaufort Rentals, we’re always looking for ways to help our owners succeed. If you have any questions about your property’s performance or want to ensure you’re maximizing its potential, let’s connect!