Updated September 2026
The calculator's cash flow, cash-on-cash return, NOI and cap rate are all pre-tax operating figures — none of them include depreciation, because depreciation isn't a real cash expense and its benefit depends entirely on your personal tax situation. But it's a real part of many investors' total return, so it's worth understanding on its own even though this tool deliberately doesn't model it.
Depreciation is a tax concept, not a cash flow line item: it lets an owner deduct a portion of a rental property's building value (not the land, which isn't depreciable) from taxable rental income each year, spread over a fixed recovery period set by tax law, on the theory that a building wears out over time. You don't write a check for depreciation — it simply reduces the rental income you owe tax on, which can turn a property that's cash-flow-positive into one that shows a taxable loss on paper, even though real cash kept coming in.
If depreciation shelters some or all of your rental income from tax, your actual after-tax cash retained is higher than the pre-tax cash flow number alone suggests — which is a real, meaningful benefit for many buy-and-hold investors, especially in the early years of ownership when the depreciable basis (and therefore the deduction) is largest. This is one reason two properties with identical pre-tax cash-on-cash returns can have noticeably different real returns for two different investors, depending on their tax bracket and how much of the deduction they can actually use.
Depreciation isn't free money — it's closer to a tax-timing shift. When you eventually sell, tax law generally requires "recapturing" the depreciation you claimed, taxing that portion of your gain differently (and often at a specific recapture rate) than ordinary capital gains. In effect, depreciation reduces your tax bill every year you hold the property, then partially reverses that benefit — at your specific tax situation at the time of sale — when you dispose of it. This is exactly the kind of long-horizon, individual-circumstance calculation this calculator's simple year-by-year projection isn't built to handle.
Depreciation's real dollar value depends on facts this tool has no way to know: your marginal tax bracket, whether passive-activity-loss rules limit how much of the deduction you can currently use against other income, your jurisdiction's specific depreciation schedule and recovery period, how the purchase price splits between land and building, and your expected holding period and exit tax treatment. Any single depreciation number this calculator could show would be wrong for most individual readers in a way that's hard to flag clearly enough within a quick-estimate tool — so cash flow, cash-on-cash return, NOI and cap rate are shown as pre-tax operating figures, and depreciation is left to a tax professional who knows your actual situation.
Use the pre-tax cash-on-cash return and cap rate this calculator produces as your operating-performance baseline — the numbers that let you compare properties on a level, financing- and tax-situation-independent footing. Then, separately, ask a tax professional (or model it yourself with your actual bracket and the applicable depreciation schedule) roughly how much depreciation could shelter of that income for your specific situation, and what recapture might look like at your likely exit timeline. The pre-tax number this tool gives you is the honest starting point; depreciation is a personal overlay on top of it, not a universal adjustment.
Does depreciation apply to land? No — only the building (and certain improvements) is depreciable under most tax systems; land value is specifically excluded because it isn't considered to wear out.
Can depreciation turn a profitable property into a "loss" for tax purposes? Yes, commonly — a property with genuinely positive cash flow can still show a taxable loss once depreciation is deducted, which is a large part of why real estate is often discussed as tax-advantaged. Whether you can use that paper loss against other income depends on passive-activity-loss rules and your specific tax situation.
Is depreciation the same everywhere? No — recovery periods, methods, and land/building allocation rules vary by country and change over time with tax law. Always confirm current rules for your jurisdiction with a qualified tax professional.
This page is educational only, not tax or investment advice. Depreciation rules are jurisdiction- and situation-specific — consult a qualified accountant or tax professional before relying on any depreciation assumption.