What is the preferred method of depreciation for residential rental property?

The preferred method of depreciation for residential rental property is the straight-line method. This method spreads the cost of the property evenly over its useful life, which is currently set at 27.5 years for residential rental properties.

Using the straight-line method provides a consistent annual depreciation expense, simplifying tax preparation and financial planning for property owners. This predictability can be advantageous when preparing financial statements or tax returns, as the taxpayer can expect a stable deduction each year rather than fluctuations that might occur with other methods.

While other methods, such as declining balance or sum-of-the-years-digits, may accelerate depreciation, they are not typically used for residential rental properties under current tax regulations. The straight-line method aligns with IRS guidelines, making it the standard and preferred choice for depreciation in this context. Furthermore, the half-year convention is relevant for determining the first year of depreciation but does not stand alone as a method of depreciation.