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Rental property depreciation explained: US 27.5 years vs Canada's CCA Class 1 at 4%

You can't deduct the cost of a rental building in the year you buy it. You recover it a bit at a time: depreciation on Schedule E in the US, capital cost allowance (CCA) on Form T776 in Canada. Here's how each system works, with the official worked examples.

Updated October 20, 2026 · by Tidy Landlord

The idea both countries share

Two rules are the same on both sides of the border:

Land never depreciates. The IRS says you can't depreciate land because it doesn't wear out (IRS Pub. 527), and the CRA says land is not depreciable property (CRA guide T4036). Split the price between land and building first; Pub. 527 allows using your property tax assessment if the contract doesn't.
The clock starts when the rental is ready. In the US you begin when the property is ready and available for rent. In Canada you can usually claim CCA once the property is available for use.

US: 27.5 years, straight line, mid-month convention

Under the General Depreciation System (GDS), a residential rental building and its structural components, such as furnaces and water pipes, are depreciated over 27.5 years. Additions and improvements, such as a new roof, use the same 27.5 years starting from the date they're placed in service. You must use the straight-line method and the mid-month convention: whatever day in the month you place the property in service, it's treated as the middle of that month (Pub. 527, chapter 2).

A full year of depreciation is the building's basis divided by 27.5, about 3.636% a year. The first year is smaller because you only count the months the property was in service. The IRS example: you buy a house for $185,000, the contract says $25,000 of that is land, and you place it in service on February 8. Your basis for depreciation is $160,000. The Table 2-2d percentage for February in year 1 is 3.182%, so the first-year deduction is $5,091 ($160,000 × 3.182%). A full year after that is about $5,818.

US rules that catch landlords out

Depreciation isn't optional in practice. If you don't claim it, you must still reduce your basis by the amount you could have deducted (Pub. 527), so skipping it just raises your gain when you sell.
Vacant between tenants? Keep depreciating it.
Form 4562 in the first year. You must file Form 4562 for depreciation on property placed in service during the year (IRS: About Form 4562). After that, keep your own worksheet and carry the total to Schedule E line 18.
Appliances and carpet are faster. Shorter-lived items used in the rental have their own recovery periods (5 years for appliances, carpets and furniture under Table 2-1). Some may also qualify for 100% bonus depreciation, restored for qualified property acquired and placed in service after January 19, 2025 (Pub. 527); see chapter 3 of IRS Pub. 946.
When you sell, the depreciation you claimed (or could have claimed) has lowered your basis, so your gain is bigger. For how that gain is taxed, including the special rules for gain from depreciation, see IRS Pub. 544.

Canada: CCA Class 1 at 4%, declining balance

In Canada the deduction is called capital cost allowance. Most rental buildings acquired after 1987 go in Class 1, at 4%. Its wiring, plumbing and heating go in with it. Furniture and household appliances you rent with the property go in Class 8, at 20% (T4036, chapter 4).

CCA uses the declining-balance method: each year you apply the rate to what's left, the undepreciated capital cost (UCC), not to the original cost.

Canadian rules that change the number

The half-year rule. In the year you acquire rental property, you can usually claim CCA on only half of your net additions to the class. This doesn't apply to property that qualifies for the accelerated investment incentive, or under proposed changes the reaccelerated incentive for property acquired after 2024, so check which applies to yours.
CCA can't create or increase a rental loss. Add up your net rental income from all your properties first. If the total before CCA is zero or a loss, you can't claim CCA that year, on the buildings or on the appliances.
CCA is optional. You can claim anything from zero up to the maximum. Whatever you don't claim stays in the UCC for later years, which is different from the US.
Selling can trigger recapture or a terminal loss. If you sell for more than the class's UCC, the difference, up to what you originally paid, is recaptured CCA and goes on line 9947 of Form T776. If you sell for less and nothing is left in the class, you may have a terminal loss on line 9948.

The CRA's worked example puts these together. Paul buys a house to rent: $75,000 for the building, $15,000 for the land, plus $5,000 of legal fees and land transfer tax, which he splits between land and building. His Class 1 capital cost works out to $79,166.67. With the half-year rule, the maximum CCA would be $1,583.33 ($79,166.67 × 50% × 4%). But his net rental income before CCA is only $1,100, so he can claim at most $1,100, because CCA can't create a rental loss.

Quebec: claim it on TP-128 as well

Quebec landlords report rental income on line 136 of the provincial return, enclose form TP-128-V for each property and deduct CCA there too. The same limit applies: you can't claim the part of CCA that creates or increases a rental loss (Revenu Québec, line 136).

Side by side

Building: US 27.5 years straight line; Canada Class 1, 4% of the declining balance.
First year: US months in service with the mid-month convention; Canada half-year rule unless an incentive applies.
Optional? US no, basis drops either way; Canada yes, claim any amount up to the maximum.
Losses: US depreciation can be part of a rental loss, subject to the passive loss rules; Canada CCA can't create or increase one.

Frequently asked questions

How long do you depreciate a rental property in the US?

27.5 years. Residential rental buildings and their structural components are depreciated over 27.5 years under GDS, using the straight-line method and the mid-month convention (IRS Publication 527). Land isn't depreciated.

What is the CCA rate on a rental property in Canada?

Most rental buildings acquired after 1987 are Class 1, at 4% a year on the declining balance (CRA guide T4036). Furniture and appliances rented with the property are usually Class 8, at 20%.

Can CCA create a rental loss in Canada?

No. You can't use CCA to create or increase a rental loss. Combine the net rental income from all your properties first; you can only claim CCA up to that amount (CRA guide T4036).

Do I have to claim depreciation on my US rental?

If you skip it, you still have to reduce your basis by the depreciation you could have claimed (IRS Publication 527). That raises your gain when you sell, so not claiming it usually costs you.

Sources

This guide is general information to help you organize your records. It is not tax, legal or accounting advice, and rules and amounts change every year. Confirm how they apply to you with a qualified tax professional or the official sources linked above before you file.

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