How the mid-month convention sets your first year of rental depreciation
Residential rental property is depreciated over 27.5 years, and the first year is a partial year. IRS rules treat the property as placed in service at the midpoint of the month it is ready for rent, so a February start gets 10.5 months of the first year, not 11 or 12. That one fact explains why the first year percentage is smaller than 1 divided by 27.5.
What the mid-month convention says
IRS Publication 527 says a mid-month convention is used for all residential rental property. You treat all property placed in service, or disposed of, in any month as placed in service, or disposed of, at the midpoint of that month. Under the general depreciation system the recovery period for residential rental buildings is 27.5 years.
The date that counts is the date the property is placed in service. Publication 527 says that is when it is ready and available for a specific use in the rental activity, even if you have no tenant yet. Closing on a building is not the same day if the units need work before anyone could live in them.
The math behind the first year percentage
A full year of straight line depreciation on a 27.5 year property is 1 divided by 27.5, which is about 3.636%. The first year gets only the part of the year after the midpoint of the month the property was placed in service.
| Placed in service | Months in year 1 | Year 1 percentage |
|---|---|---|
| January | 11.5 | 3.485% |
| February | 10.5 | 3.182% |
| June | 6.5 | 1.97% |
| December | 0.5 | 0.152% |
Each percentage is 3.636% times months divided by 12. February matches the 3.182% Publication 527 uses in its own example for a February start. The preparer reads the exact figure from the IRS table, so treat the others as a check, not a filing number.
Example a made-up building has a depreciable cost of $160,000 (the building, not the land) and is ready to rent in February. Year 1 depreciation is $160,000 times 3.182%, which is $5,091. This is the same arithmetic as the Publication 527 example. A building ready in December would get $160,000 times 0.152%, which is about $243.
Years two onward, and the sale year
After the first year the deduction is the same each full year: 1 divided by 27.5 of the depreciable cost, about 3.636%. In the example that is $160,000 divided by 27.5, or $5,818 a year. The last year picks up whatever is left after the partial first year.
The same midpoint rule applies when you sell or retire the building. Sell in March and you take the part of the year to the middle of March. When you record the sale, that final partial year is part of the entry, as in recording the sale of a rental in your books.
Practical points for your records
- Write down the placed in service date and why you chose it: the day the unit was ready and advertised, a certificate of occupancy, or the first listing.
- Split the purchase price between land and building first, since land is not depreciated. See allocating the price between land and building.
- Improvements are separate assets with their own placed in service dates and their own first year. See the capital improvements log.
- If you forgot to start depreciation, see catching up on missed depreciation.
A building that is idle between tenants keeps depreciating. Publication 527 says to continue to claim depreciation on property used in your rental activity even if it is temporarily idle. Turnover time after a tenant leaves does not stop the clock.
How DoorKeeping handles it
DoorKeeping's Schedule E report leaves depreciation at 0, because depreciation is your accountant's to add. Keep each property's placed in service date and cost basis with your preparer, and ask Claude or ChatGPT to show the arithmetic so you can compare it with your preparer's schedule. DoorKeeping does not give tax advice, and the IRS tables decide the exact percentage.
Sources
- IRS, Publication 527, Residential Rental Property (2025), read Oct 30, 2026
Questions
- Why is year one smaller than 3.636%?
- Because the mid-month convention counts only the months after the midpoint of the month the property was placed in service. A February start counts 10.5 months.
- Does the placed in service date equal the closing date?
- Not always. Publication 527 says property is placed in service when it is ready and available for its specific use in the rental activity.
- Does depreciation stop while the unit is vacant?
- No. Publication 527 says to keep claiming depreciation on rental property that is temporarily idle.