When you sell a rental property, you must claim all income and expenses for the rental during the year of the sale, including depreciation. You receive the entire annual depreciation expense for the property in the year of the sale, regardless of the date you actually sell the property. In addition, you must calculate your depreciation expense for the year first to properly report the sales transaction on your tax return.
Calculate your basis for depreciation. Your basis for depreciation equals your initial adjusted basis in the rental property, minus the accumulated depreciation expense you have claimed since you placed the property in service.
Obtain the instructions for IRS Form 4562 on the IRS's website. Locate the depreciation tables are in the back of Form 4562 instructions and look for Table C. Table C lists the straight-line depreciation percentages for property with a 27.5 year recovery period. Rental property must be depreciated over 27.5 years.
Find the year of service for the rental property in the “Year” column and then scroll over to the number that corresponds to the month the rental property was first placed in service. Note the percentage shown on the table for the year and month the property was first available for rent.
Multiply your adjusted basis by the percentage shown in the table. The result is your depreciation expense for the year.
- IRS.gov: Instructions for Form 4562
- IRS.gov: Publication 527 -- Residential Rental Property: Depreciation of Rental Property
- Internal Revenue Service. "Tips on Rental Real Estate Income, Deductions and Recordkeeping." Accessed Sept. 30, 2019.
- Internal Revenue Service. "Publication 946, How to Depreciate Property." Accessed Sept. 30, 2019.
- Internal Revenue Service. "Publication 551, Basis of Assets." Accessed March 16, 2020.
- Internal Revenue Service. "Publication 527, Residential Rental Property." Accessed March 16, 2020.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.