First time landlord - Depreciation formula

[Jim Wilson]

First time as a landlord and have questions regarding depreciation. Accountant said use MACRS (Modified Accelerated Cost Recovery System) 27.5 years.
(Cost Basis – Land Value) ÷ 27.5 = Annual Depreciation Expense

Is the land value the year I bought the property for personal living, or when I started renting it out? I lived at the property for five years, and the land value was lower when I purchased the property. 21,000 to 25,000 in 2024.

Accountant also said I can include upgrades Ive done to the property, and add that cost to the purchase price. And dont include repair costs to that figure, only improvements to the property. Ive done about $40,000 in improvements. Want to nail down the formula and seeking suggestions.

[Josh St Laurent]

MACRS is the standard way to depreciate the property. You'd use the cost basis (what you paid) + improvements (40k) and subtract the current land value since that can't be depreciated (25k). If you are wanting to maximize depreciation you could talk with your CPA or someone who specializes in cost segregation studies. For some situations depreciations helps a ton to offset income. For others who don't qualify for REPS or have a W2 job/long term rental the depreciation might not be able to be used at all. Worth looking into for your own situation in case it helps your financial position or tax strategy.