The short answer
Straight-line depreciation is the method that deducts an asset's cost in equal annual amounts over its recovery period, and section 168(b)(3) requires it for residential rental and nonresidential real property. Residential rental buildings are recovered over 27.5 years and commercial buildings over 39, with the first and last years prorated under the mid-month convention. Land is never depreciated, so only the building's share of the price goes into the calculation.
At a glance
| Residential rental | 27.5 years, about 3.636% of the building basis per full year |
|---|---|
| Nonresidential | 39 years, about 2.564% per full year |
| Convention | Mid-month: placed in service or sold at the midpoint of the month |
| Salvage value | Treated as zero |
Section 168 sets the method, the period and the convention together
Under section 168(a), depreciation is fixed by three things: the method, the recovery period and the convention. Section 168(b)(3) makes the straight-line method mandatory for residential rental property and nonresidential real property, section 168(c) sets their periods at 27.5 and 39 years, and section 168(d)(2) applies the mid-month convention. Section 168(b)(4) treats salvage value as zero.
Section 168(e)(2) defines residential rental property as a building where 80% or more of gross rental income comes from dwelling units; other buildings such as offices, stores and warehouses are nonresidential. IRS Publication 946 adds that a dwelling unit does not include a hotel or motel unit where more than half the units are used on a transient basis.
The mid-month convention in section 168(d)(4)(B) treats property placed in service or disposed of during any month as placed in service or disposed of at the midpoint of that month.
Worked example: a rental house placed in service in July
Hypothetical: you buy a rental house for $350,000, and $75,000 is allocable to land. The building basis is $275,000, so a full year of straight-line depreciation is $275,000 divided by 27.5, or $10,000.
You place it in service in July. The mid-month convention counts July as half a month, so the first year has 5.5 months: $10,000 times 5.5/12, or about $4,583. Years two through 28 are $10,000 each, and the last $417 falls into year 29. Publication 946 works the same convention in reverse for a sale: a building sold in March gets 2.5 months of depreciation that year. Run your own numbers with your CPA.
Where it bites: recapture on sale and depreciation after an exchange
Because buildings are depreciated straight-line, section 1250 ordinary-income recapture usually does not apply; IRS Publication 544 says residential rental and nonresidential real property placed in service after 1986 and held more than a year has no additional depreciation unless a special depreciation allowance was claimed. The depreciation is still taxed on sale as unrecaptured section 1250 gain at up to 25%; see the 2026 recapture rates.
In a 1031 exchange, Publication 946 says the carryover basis continues on the old property's remaining recovery period and method, and any excess basis starts a new schedule; see depreciating replacement property. Moving from a residential building to a commercial one changes the period, which the residential versus nonresidential page explains.
Shorter-lived parts of a property, such as appliances or paving, are not on the building's straight-line schedule; they fall under the broader MACRS system.
Related questions
Can I choose a faster method for a rental building?
No. Section 168(b)(3) requires straight-line for residential rental and nonresidential real property. Faster write-offs come from separating shorter-lived components through a cost segregation study.
What if I never claimed depreciation?
Basis is still reduced by depreciation allowed or allowable, as Publication 551 lists among the decreases to basis, so the gain on sale reflects it. See recapture on depreciation never claimed.
Is straight-line the same under the alternative depreciation system?
The method is the same but the periods are longer: section 168(g) uses 30 years for residential rental property and 40 years for nonresidential real property.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.