Does depreciation count in NOI?
No. Depreciation is an accounting and tax concept, not money leaving your account. It never touches NOI, cap rate, or cash flow. What it reduces is taxable income, which is a different statement entirely.
Why it matters
Depreciation is one of the real advantages of owning rental property, and it works precisely because it is not a cash expense. Folding it into NOI both understates the property's operating performance and misunderstands what the deduction is doing for you.
What it does to the number
Subtracting depreciation from NOI on a $250,000 property — roughly $7,300 a year on a 27.5-year residential schedule — would cut the reported cap rate by nearly 3 percentage points, on money that never moved.
Worth knowing
- US residential rental property depreciates over 27.5 years; land is not depreciable.
- It reduces taxable income, not NOI and not cash flow.
- Depreciation is recaptured on sale, so it is a deferral rather than a gift.
- Talk to a CPA about your own situation — this is general information, not tax advice.
The rule this calculator locks
NOI never subtracts debt service, depreciation, or income tax.