East Cobb has a large and quiet population of accidental landlords. Families who moved for a job and kept the house off Johnson Ferry Road, owners who bought a second home in a sought-after school district to rent out, parents who own a townhome their grown children used to live in. The rent comes in, the mortgage and taxes go out, and a tax return gets filed every spring.
The deduction those returns miss most often is depreciation. It does not show up on any bank statement, no form reminds you to claim it, and many owners assume that leaving it off simply means paying a little more tax now. It does not. This guide explains how rental property depreciation works for East Cobb owners, what happens when it is skipped, and how to fix it.
Why depreciation is the deduction owners miss
Most rental expenses involve writing a check: insurance, repairs, HOA dues, property management. Depreciation is different. It is a deduction for the gradual cost of the building itself, spread over many years, and it involves no payment at all in the year you claim it.
That makes it easy to forget, especially for owners who prepare their own returns or who converted a former home without thinking of it as an investment. It is also frequently the largest single deduction on a residential rental, often large enough to turn taxable rental profit into little or no taxable income.
Skipping it does not postpone the issue
This is the part that surprises people. The tax law reduces a property’s basis by the depreciation that was allowable, whether or not it was actually claimed. When you sell, gain is calculated using that reduced basis, and the portion of gain attributable to depreciation on real property is generally taxed at a federal rate of up to 25% for long-term residential rental property.
In practice, an owner who never claimed depreciation can be taxed at sale as though they had taken it, without ever having received the deduction. Skipping depreciation is not a deferral. It is a lost deduction followed by the same tax bill.
How rental property depreciation is calculated
- Start with basis. Generally the purchase price plus certain closing costs and the cost of improvements made before the property was rented.
- Remove the land. Land is not depreciable. The basis has to be split between land and building, based on relative values, often using the county tax assessor’s allocation as a practical method or, better, an appraisal.
- Apply the recovery period. Residential rental buildings are depreciated using the straight-line method over 27.5 years, with a mid-month convention in the first and last years.
- Begin when it is placed in service. Depreciation starts when the property is ready and available for rent, not necessarily when the first tenant moves in.
On a house whose building portion is worth $330,000, that works out to roughly $12,000 of depreciation in each full year, with less in the first and last years because of the mid-month convention.
If your rental used to be your home
Converting a personal residence to a rental is common in East Cobb, and it comes with a specific rule. The depreciable basis is generally the lower of your adjusted basis in the home or its fair market value on the date it was converted. If the home has appreciated since you bought it, that usually means your original cost plus improvements. If it has declined, the lower market value is used.
Conversions also affect the home sale exclusion. If you later sell a former residence, the exclusion does not shelter the portion of gain attributable to depreciation taken after May 6, 1997, and time spent as a rental can reduce the exclusion in some situations. Anyone planning to sell a former home within a few years of moving out should look at the numbers before listing it.
Improvements, repairs and the safe harbors
What you spend on a rental after it is in service falls into two categories:
- Repairs and maintenance that keep the property in ordinary working condition are generally deductible in the year paid.
- Improvements that better, restore or adapt the property, such as a full roof replacement or a replaced HVAC system, are generally capitalized and depreciated, depending on the facts.
Several safe harbors help small landlords. A de minimis election generally allows items costing up to $2,500 per invoice or item to be expensed by owners without audited financial statements. A safe harbor for small taxpayers, those with average annual gross receipts of $10 million or less, allows costs on a building with an unadjusted basis of $1 million or less to be deducted if total annual repairs, maintenance and improvements on that building do not exceed the lesser of $10,000 or 2% of its unadjusted basis. Appliances, carpeting and similar items generally have shorter recovery periods than the building, and following the 2025 federal tax law, qualifying shorter-life property acquired after January 19, 2025 is generally eligible for 100% bonus depreciation, unless it is required to use the alternative depreciation system.
How to fix years of missed depreciation
If depreciation was missed only for the first year the property was in service, and the next year’s return has not been filed, an amended return can generally fix it. If it was missed for two or more years, the correction is usually made by filing Form 3115, an application for a change in accounting method, with a current-year return. The change allows the missed depreciation to be claimed as a catch-up adjustment in the year of change, without amending every prior return. It is a technical filing, but for owners who have held a rental for many years, the catch-up deduction can be substantial.
Other expenses East Cobb landlords overlook
- Property taxes on the rental. Property tax on a rental is deducted as a rental expense, separately from the itemized deduction limit that applies to taxes on your own home.
- HOA dues and special assessments, with assessments for capital improvements capitalized rather than deducted.
- Mileage for trips to the property to handle maintenance, showings or inspections.
- Insurance, management fees and legal costs, including lease preparation and eviction costs.
- Mortgage interest on debt used to buy or improve the rental.
A rental that shows a loss after these deductions may not produce an immediate tax benefit, since rental losses are generally subject to the passive activity rules. Unused losses carry forward rather than disappearing.
Help from our Marietta office
Manay CPA’s Marietta office prepares returns for rental owners across East Cobb, Marietta and Kennesaw. We review depreciation schedules, file accounting method changes to recover missed depreciation, and plan sales of former homes and rentals. Learn more about our tax filing for real estate investors and tax planning, or see our list of rental property tax deductions.
Frequently asked questions
Is depreciation required on a rental property?
In effect, yes. Your basis is reduced by the depreciation allowable each year whether or not you claim it, so not claiming it means losing the deduction while still facing the tax consequences when you sell.
What happens if I never claimed depreciation on my rental?
If it was missed for two or more years, you can generally claim the missed amount through an accounting method change on Form 3115, taking a catch-up deduction in the current year. If only the first year was missed and the next return has not been filed, an amended return is generally used.
How long is a rental house depreciated?
Residential rental buildings are depreciated over 27.5 years using the straight-line method. Land is excluded, and items such as appliances or carpeting generally have shorter recovery periods.
What basis do I use if I converted my home to a rental?
Generally the lower of your adjusted basis in the home or its fair market value when you converted it, allocated between land and building.
Talk to us
If you own a rental in East Cobb and are not sure your returns have been claiming depreciation correctly, we can review your prior filings and tell you what can be recovered. Book a consultation with our Marietta team.
