MACRS

MACRS, short for Modified Accelerated Cost Recovery System, sets the schedules US taxpayers follow when writing off business property. Under it, a residential rental building is written off in equal amounts across 27.5 years, while commercial buildings take 39. Land is never depreciated.

For the default house, the $100,000 land allocation is left out and the $400,000 building is recovered at about $14,545 a year. Rules for the first and last month of service slightly reduce the first year's deduction.

MACRS affects taxable income and after-tax cash flow, not NOI. An appraiser or buyer values the property on NOI, so two owners with different depreciation schedules still have the same NOI and the same market value. Depreciation only matters when you move from the property to the owner's tax return.