Real Estate Tax Calc
Condo depreciation: the basics
A condominium rental depreciates over 27.5 years under MACRS, the same schedule as any residential rental. Your depreciable basis is the building portion of what you paid — purchase price plus acquisition closing costs, minus land value. For a stand-alone house the land is the dirt under the structure; for a condo, the land component is your proportionate share of the ground the entire building sits on, which means it is usually a smaller percentage of the purchase price than it would be for a single-family property.
Use the county tax assessor's land-to-improvement ratio as a starting point; if that ratio seems unreasonable, a qualified real-property appraisal will support a different allocation. The IRS accepts either method as long as it is well-documented.
Co-op apartment: shares, not real property
A cooperative apartment is different. You do not own real property — you own shares in a corporation that owns the building, with a proprietary lease entitling you to occupy a specific unit. When you rent the unit out, you can still claim depreciation, but you must determine what portion of your cost basis is attributable to the building itself rather than the land underneath it.
The co-op association typically has a depreciation schedule or can provide a statement of what fraction of the building's total depreciable value corresponds to your unit. You apply that fraction to your purchase price (minus the land allocation) to establish your depreciable basis. Depreciate over 27.5 years.
Common mistakes
Two errors trip up condo investors. First, failing to subtract a land component: even a 10th-floor condo has a land allocation — usually 10–20% of price in an urban high-rise but check your specific market. Second, using FMV appreciation as the basis: your depreciable basis is what you actually paid, not what the unit is worth today. Improvements you made after purchase add to basis; the market going up does not.
A worked condo depreciation example
You buy a rental condo for $300,000 and pay $6,000 in capitalizable closing costs (title, recording, attorney, transfer tax), for a total basis of $306,000. The county assessor values the unit at $270,000 total — $54,000 land (20%) and $216,000 improvement (80%). Apply that 80% improvement ratio to your $306,000 basis: $244,800 depreciable building basis, and $61,200 of non-depreciable land.
Annual depreciation is $244,800 ÷ 27.5 = $8,902 per year, pro-rated in year one by the mid-month convention. If you placed it in service in May, year-one depreciation is roughly $8,902 × (7.5 ÷ 12) = $5,564. Keep the assessor printout showing the land/improvement split — it is your primary support for the allocation if the IRS ever asks.
What goes into basis — and what stays out
Capitalizable acquisition costs that add to your depreciable basis include title insurance, recording fees, transfer taxes, survey and legal fees, and any pre-rental improvements. Costs that do not go into basis include loan-related charges — points, loan origination fees, the lender's appraisal, and credit-report fees — which are instead amortized over the life of the mortgage on a separate schedule.
Prepaid items settled at closing (property tax proration, prepaid insurance, prepaid interest) are generally current deductions in the year paid, not basis additions. Getting this split right in year one prevents two errors: burying deductible loan costs inside a 27.5-year schedule, and depreciating prepaid items that should have been expensed.
Personal property inside the unit
A condo rental often includes — or you add — appliances, carpeting, window treatments, and furniture. These are not 27.5-year real property; they are 5- or 7-year MACRS personal property that depreciates far faster, and much of it can be expensed immediately under the de minimis safe harbor (up to $2,500 per item with a written policy) or accelerated with bonus depreciation.
A cost segregation study works on condos too, carving out the appliances, cabinetry, and specialty finishes from the building shell. On a high-value urban unit the accelerated first-year deductions can be meaningful, though the smaller absolute basis of a condo — versus a house that also carries land improvements and site work — usually means a smaller reclassification percentage.
Co-op depreciation in depth
A cooperative is taxed under a special regime. You own stock in a housing corporation, and Section 216 lets a resident shareholder deduct their proportionate share of the corporation's mortgage interest and real estate taxes. When you rent the unit out, the analysis shifts to Schedule E: you depreciate your allocable share of the building and deduct rental expenses, and your Section 216 pass-through interest and taxes become rental deductions rather than personal itemized ones.
To set your depreciable basis, start with what you paid for the shares plus capitalizable closing costs, subtract the land component, and — where the corporation provides it — apply your unit's fractional interest to the building's depreciable value. Ask the co-op's managing agent for a statement of the building's depreciable basis and your share; absent that, an appraisal allocating your unit's building-versus-land value supports the figure.
Land allocation methods for high-rise units
The assessor ratio is the default, but it is not the only defensible method. If the assessor's land value looks distorted — common in dense cities where land is assessed oddly for high-rises — you may use a qualified appraisal that separately values land and improvement, or an insurance replacement-cost approach that estimates building value and treats the residual as land. Whatever method you choose, apply it consistently and keep the supporting document.
For a top-floor unit in a tall building the land allocation is genuinely small — the same parcel of dirt supports dozens of units — so a 10–20% land figure is often reasonable. But never allocate zero to land: the IRS treats a 0% land allocation as a red flag, because land always has some value and is never depreciable.
Recapture and the eventual sale
Every dollar of depreciation you claim (or were entitled to claim) on a condo or co-op reduces your basis and is subject to unrecaptured Section 1250 gain — taxed at a maximum federal rate of 25% — when you sell at a gain. This is identical to any other residential rental; the condo or co-op form does not change recapture.
One wrinkle: selling a co-op means transferring shares and the proprietary lease rather than deeding real property, but for federal income tax it is still treated as a sale of a capital asset used in a rental activity, reported on Form 4797, with depreciation recapture computed the same way. Keep a lifetime depreciation schedule so you can compute the recapture accurately decades later.
Improvements, assessments, and the repair line
Money you spend after purchase falls into two buckets. A repair that keeps the unit in ordinary operating condition — patching, repainting, fixing a leak — is a current Schedule E deduction. An improvement that betters, restores, or adapts the unit (a full kitchen remodel, new flooring throughout, a replacement HVAC system) is capitalized and depreciated. The tangible property regulations' 'BAR' test — betterment, adaptation, restoration — draws the line.
Condo owners face this most often with HOA special assessments. An assessment funding a capital project for the building — a new roof, elevator modernization, or facade repair — is generally added to your basis and depreciated over 27.5 years, because it funds a capital improvement to property you partly own. An assessment covering routine operating costs or minor repairs is a current expense. Ask the HOA to characterize the assessment's purpose in writing; that documentation supports whichever treatment you take and keeps your depreciation schedule defensible at sale.
State income tax conformity
Federal MACRS is only part of the picture. Most states start from federal taxable income and accept the same 27.5-year building depreciation, but a handful decouple from federal rules in ways that touch a condo or co-op rental. States that do not conform to bonus depreciation — which applies to the personal property you carve out of the unit, not the 27.5-year shell — require you to add the bonus back on the state return and depreciate those assets over their normal recovery period for state purposes, creating a second depreciation schedule that runs alongside the federal one. California is the most prominent example, and several other states impose similar add-backs.
States with no income tax — Texas, Florida, Washington, and others — impose no depreciation adjustment at all, because there is no state return to reconcile. If your rental condo sits in one state while you live in another, you generally file a nonresident return in the property's state and a resident return where you live, taking a credit to avoid double tax on the rental income. Keep both a federal and, where it differs, a state depreciation schedule so the two reconcile every year and again at sale, when accumulated depreciation drives the recapture computation.
Passive losses and the $25,000 allowance
Depreciation frequently pushes a condo rental to a tax loss even when it is cash-flow positive, because the deduction is non-cash but fully real for tax purposes. Rental real estate is a passive activity by default, so those losses can normally offset only passive income — not your wages or portfolio income. Disallowed passive losses are suspended and carried forward until you have passive income or dispose of the property in a fully taxable sale, at which point the suspended losses are released.
Two relief valves exist. Under the $25,000 special allowance, an owner who actively participates — approving tenants, setting rents, and making management decisions — may deduct up to $25,000 of rental losses against ordinary income, phased out between $100,000 and $150,000 of modified AGI. Separately, a qualifying real estate professional who materially participates can treat the losses as non-passive. Owning inside an HOA- or co-op-managed building does not by itself defeat active participation, as long as you retain genuine decision-making authority; delegating day-to-day upkeep to the association or a manager is fine.
Frequently asked questions
What is the depreciation period for a condo rental?
27.5 years — the same as any residential rental property — using MACRS mid-month convention.
How do I find the land allocation for a condo?
Start with the county assessor's assessed land-to-building ratio. A property tax bill typically shows land and improvement values separately, and that ratio is the IRS's default.
Can I depreciate a co-op apartment?
Yes, but you depreciate your proportionate share of the building's depreciable cost (based on your unit's fraction of the whole building), not personal property you might own.
Can I depreciate appliances in my condo rental separately?
Yes. Appliances, carpeting, and furniture are 5- or 7-year MACRS personal property, not 27.5-year real property. Many items can be expensed immediately under the de minimis safe harbor or accelerated with bonus depreciation.
Are HOA special assessments depreciable?
It depends on the purpose. An assessment for a capital improvement — a new roof, elevator, or facade — is added to basis and depreciated; an assessment for routine repairs or operating costs is a current Schedule E expense in the year paid.
Is a co-op sale taxed differently than a condo sale?
You transfer shares and a proprietary lease rather than a deed, but federal income tax treats it as a sale of a capital asset used in a rental — reported on Form 4797 with the same depreciation recapture rules as any residential rental.
Is a kitchen remodel in my condo a repair or an improvement?
An improvement. A remodel betters the unit under the tangible property regulations' betterment/adaptation/restoration test, so it is capitalized and depreciated rather than deducted currently. Fixing a leak or repainting, by contrast, is a currently deductible repair.
What if my condo purchase had no separate land value listed?
Land is never zero. If your documents don't separate land, use the assessor's land-to-improvement ratio, a qualified appraisal, or an insurance replacement-cost method to carve out a reasonable land component — commonly 10–20% for an urban high-rise unit — before depreciating the building. Depreciating the full price with no land allocation is a frequent, costly error.
Does my state allow the same condo depreciation as the IRS?
Most states conform to federal MACRS, but several — California among them — decouple from bonus depreciation, so personal property you accelerate on the federal return must be added back and depreciated normally for state purposes. States with no income tax require no adjustment at all. Keep a separate state schedule whenever the two differ.
Can I deduct a condo rental loss caused by depreciation against my salary?
Only within limits. Rental losses are passive by default. If you actively participate and your modified AGI is under $100,000, you can deduct up to $25,000 against ordinary income, phasing to zero at $150,000. Above that, or without active participation, the loss is suspended and carried forward until you have passive income or sell the unit in a taxable disposition.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.