I have a rental property and have been reading heavily about straight line depreciation but I'm not quite grasping what it is and how I can benefit from my $4,092.92 deduction come tax season? After the deduction, does this mean I can actually get some money from the IRS? And if I do get some money from the IRS, would this increase my Annualized Net income?

Some information below in case it's helpful

My Annualized Gross income is $9,900

My Annualized Net income after all expenses paid is $878.52

My Annualized Net Operating income is $5,481.60

After doing my calculations:

LTV = 80%

Years = 27.5

Purchase Price = $72,500

(LTV * Purchase Price) / 27.5 = $4,092.92 depreciation

If you need more info, please need me know.

  • 1
    Note that you can only depreciate the cost of the house, not the land, so you should determine how much of the property's value is from the land and adjust your cost basis accordingly. Meaning if the market value of the whole property is $75,000 but the land is worth $15,000 then you can only depreciate 80% of the purchase price.
    – D Stanley
    Nov 23, 2021 at 3:30

3 Answers 3


You benefit from depreciation because it reduces your taxable income. The basic cash value of depreciation is Depreciation times Marginal Tax Rate = Cash Benefit.

How I can benefit from my $4,092.92 deduction come tax season?

  • It will reduce your taxable income. If $5,481.60 is your taxable income before depreciation (NOTE: NOI and taxable income ARE NOT THE SAME. I will just use this for illustrative purposes) and 35% is your effective tax rate (I will pretend marginal and effective taxes are equal here for simplicity), then you will pay $1,918.56 in taxes. Once you subtract depreciation, your taxes are ($5,481.60 minus $4,092.92) times 35% = $486.04 taxes. Depreciation saved $1,432.52 in taxes, which equals the basic formula in the first line, Depreciation times Tax Rate = Cash Value.

After the deduction, does this mean I can actually get some money from the IRS?

  • The depreciation is only a small part of this question. If you have positive taxable income, then the relevant question for an IRS refund is did you over- or underpay on taxes for the year. In the example above, if you end up owing $486 in taxes, but you paid the IRS $1000 throughout the year, then you will get a refund of $514. If only paid the IRS $200 in the year, then you will still owe them $286 even with the depreciation. If you have a negative taxable income for the year, you will just owe $0 in taxes for that year.

And if I do get some money from the IRS, would this increase my Annualized Net income?

  • Not really, Net Income is an accounting concept which is always calculated after the actual taxes. If you were calculating the Net Income incorrectly with too much taxes, then got a refund, then you probably need to update your accounting with the actual taxes paid and will get a new Net Income. Basically, though, if your Net Income changes after taxes it's because you were calculating it incorrectly, not because an IRS refund literally affects the Net Income.
  • Thanks for this, Ryan!
    – user113103
    Nov 24, 2021 at 2:30

A couple of issues with items in your question:

  • As pointed out in a comment the amount of depreciation is based on the value of the improvements not the land.

  • The LTV isn't a factor in calculating the amount of depreciation.

  • When calculating your taxes the the amount of your monthly payment used to repay the principal doesn't reduce your taxes.

This last point is why depreciation is important. If you didn't have depreciation you could lose money each month but still have taxable income from the IRS view.


Given that you specifically say "straight line depreciation", it's not clear whether you're asking about depreciation in general, or asking whether the straight line version specifically acts differently. Depreciation in general is often described as reducing your taxable income, but more precisely, it defers your taxable income. Depreciation reduces the cost basis of your asset, so when it sells, the amount of the sale price that is considered "profit" is increased.

Depreciation is a deduction from your income, not a credit. That is, it's not money you're getting from the IRS, at least not directly. Lower taxable income means lower tax, and if you've already paid more than you owe, you may get a refund, but that's different from the IRS just giving you the amount of the depreciation. Since depreciation is larger than your net income, you won't be able to fully benefit from it. You may be able to claim the loss against your other income and/or carry the loss forward. You should check with a tax professional what your options here are.

The decrease in value of your assets is an expense, so it's a bit misleading to give your net income after expenses, when that doesn't include depreciation. The depreciation for tax purposes is, of course, not necessarily the same as the actual decrease in fair market value, but when you're calculating profit, you should consider "actual" depreciation. Your calculated depreciation is more than four times your net income, which should give you pause. Again, that's not necessarily all "real" expense, but some of it is. You should seriously consider whether your making an actual profit, especially since there may be other expenses you're not considering.

Also, I don't understand the line

(LTV * Purchase Price) / 27.5 = $4,092.92 depreciation

You give LTV as 0.8 and purchase price as $72,500, and I calculate 0.8*$72,500/27.5 as $2,1091.

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