Depreciation on a San Antonio Rental: 27.5-Year Schedule, Cost Basis, and What's Actually Deductible

Residential rental property in San Antonio depreciates over 27.5 years under the IRS's MACRS straight-line method. That means each full tax year you're renting the house, you deduct roughly 3.636% of the building's cost basis against your rental income — whether or not the house is actually losing value. In Bexar County, where BCAD appraisals have generally moved up, depreciation is a paper loss that shelters real cash flow. Get the cost basis right and the schedule started correctly and this single deduction usually turns a breakeven rental into a tax-positive one.

The catch is that most landlords set up depreciation wrong in year one, either by depreciating the full purchase price (illegal — you can't depreciate land) or by missing the in-service date, the closing costs that roll into basis, or the improvements that should be tracked on their own schedules. Those mistakes compound for decades and surface ugly at sale.

What the 27.5-year schedule actually is

MACRS (Modified Accelerated Cost Recovery System) assigns residential rental buildings a 27.5-year recovery period, straight-line, mid-month convention. "Mid-month" means the IRS treats the property as placed in service in the middle of whatever month you actually put it on the market, regardless of the exact day. So if you closed on a duplex in Converse on March 3 and listed it for rent March 20, your first-year deduction is prorated from mid-March — 9.5 months, not 10.

The relevant IRS publication is Pub 527 (Residential Rental Property). The form you'll see it on is Form 4562 in year one (to establish the asset) and then it flows to Schedule E every year after.

Key rules:

• Only the building and improvements depreciate. Land does not.
• The clock starts when the property is available for rent, not when a tenant moves in. A house listed on the MLS through SABOR on April 1 is in service April 1, even if the first lease signs May 15.
• You cannot skip a year of depreciation to "save it for later." The IRS treats depreciation as "allowed or allowable" — meaning at sale they'll recapture it whether you claimed it or not. Claim it.

Cost basis: what actually goes into the number you depreciate

Cost basis is not just your purchase price. For a San Antonio rental, basis typically includes:

• Contract price from the TREC 20-17 (One to Four Family Residential Contract (Resale))
• Title policy premium and escrow fees from the closing disclosure
• Survey, recording fees, transfer fees
• Any seller-paid items you reimbursed
• Capital improvements made before placing in service (new roof, HVAC replacement, foundation work — common on older Southtown or Beacon Hill houses)

What does not go into basis:

• Prepaid property taxes and insurance (these are expensed)
• Loan origination fees and points (amortized over the loan term, not added to basis)
• Utility deposits with CPS Energy or SAWS

Once you have total basis, you split it between land and building. This is the step most landlords botch.

Splitting land from building: the BCAD method

The IRS lets you use any reasonable method to allocate between land and improvements. The cleanest, most defensible method in Bexar County is to use the BCAD ratio from the year of purchase.

Pull the property up on the BCAD public search. You'll see three values: Land, Improvement, and Total Market. Take the ratio.

Example: You bought a house in Mahncke Park (78209 border, 78209 ISD boundary varies — verify) for $380,000 all-in basis. BCAD shows land $90,000, improvement $260,000, total $350,000. Land is 25.7% of BCAD's total. Apply that ratio to your basis:

• Depreciable building basis: $380,000 × 74.3% = $282,340
• Annual depreciation (full year): $282,340 ÷ 27.5 = $10,267

That's $10,267/year of deduction against rents for the next 27.5 years on a house you paid $380k for.

Inside-Loop-410 neighborhoods (Alamo Heights, Terrell Hills, Olmos Park, King William) have higher land ratios — sometimes 35–45% — because the dirt is worth more. Far north Stone Oak and far west Alamo Ranch tend to run lower land ratios, often 18–25%. Do not use a default 20% across the board; the IRS has successfully challenged lazy allocations in audit.

What's deductible against rent, separate from depreciation

Depreciation is one line. These are the other operating deductions on Schedule E, all deductible in the year paid:

• Mortgage interest (principal is not deductible)
• Bexar County property taxes paid to the tax assessor-collector
• Homeowners/landlord insurance premiums
• HOA dues
• Repairs and maintenance (patching drywall, servicing the AC, replacing a garbage disposal)
• Property management fees, leasing commissions, MLS/listing fees
• Utilities you pay (if the lease has you covering SAWS or trash)
• Advertising, screening fees, background checks
• Travel to the property (IRS standard mileage rate, log it)
• Legal fees — including eviction filings in the Bexar County JP courts
• Depreciation on separately-tracked assets: appliances (5-year), carpet (5-year), fencing and landscaping (15-year)

Repair vs. improvement: the line that matters

Repairs are immediately deductible. Improvements get added to basis and depreciated. The IRS's de minimis safe harbor lets you expense items under $2,500 per invoice without capitalizing, if you've elected it on your return.

• Replacing a broken dishwasher: repair-ish, but technically a unit of property — most CPAs expense under de minimis if under $2,500.
• New roof after a Bexar County hailstorm: improvement. Capitalize and depreciate.
• Repainting a rental between tenants in Mahncke Park: repair. Expense it.
• Full HVAC system replacement: improvement. 27.5-year schedule as a building component (or shorter if cost-segregated).
• Foundation pier work on a 1940s Beacon Hill house: improvement. Capitalize.

Cost segregation: worth it above roughly $500k in basis

A cost segregation study breaks the building into components (5-year personal property, 15-year land improvements, 27.5-year structure) so you can front-load depreciation. On a $700,000 four-plex in Southtown, a cost seg can pull $80k–$150k of deductions into the first few years instead of spreading it over decades. Studies run $3,000–$8,000 from engineering firms that work Texas markets.

Below $400–500k in basis, the math usually doesn't beat the study cost. Above that, ask your CPA whether it pencils out given your marginal bracket and whether you can use the losses (passive activity rules under IRC § 469 cap deductions for most non-real-estate-professional landlords at $25k/year, phasing out between $100k and $150k AGI).

What most people get wrong

• Depreciating the full purchase price. Always strip out land first using a BCAD ratio or a qualified appraisal. Depreciating land is a straight-line error that will be caught on recapture.
• Missing the in-service date. Available for rent is the trigger, not tenant occupancy. If you listed the property in July but didn't lease until October, you get July–December of depreciation, not just Oct–Dec.
• Expensing big-ticket improvements. That $14,000 roof replacement is not a repair. Capitalize it, or the IRS will do it for you with penalties.
• Forgetting to reset basis on an inherited property. If you inherited a rental from a parent in Bexar County, basis steps up to fair market value on the date of death — pull a retrospective appraisal and start a fresh 27.5-year schedule. Do not carry over the decedent's basis.
• Not planning for recapture. When you sell, the IRS recaptures depreciation at up to 25% (Section 1250). If you've taken $100k of depreciation over 10 years, expect a tax hit on that amount at sale unless you roll into a 1031 exchange.
• Assuming the homestead exemption applies. It does not. Texas Tax Code § 11.13 homestead is only for owner-occupied principal residences. Rentals don't qualify, and claiming one on a rental is how landlords get flagged by BCAD.

Work with a CPA who does rentals

A generalist tax preparer can file a Schedule E, but rental-specific CPAs catch the things that matter — cost seg timing, passive loss grouping elections, short-term rental (STR) loophole treatment for properties with average stays under 7 days, and how to structure an LLC without triggering a due-on-sale clause on your conventional mortgage. Ask specifically how many rental returns they file annually. If it's under 50, keep looking.

If you're building a Bexar County rental portfolio, RentInSA is where San Antonio landlords list vacancies — you can post a rental free at /list-your-home, browse comparable units at /rentals to benchmark rent, or pull more landlord resources at /resources.