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The short answer
A Nigerian rental is property "used predominantly outside the United States", so 26 U.S.C. s.168(g) requires the alternative depreciation system (ADS). For residential rental property ADS uses a 30-year straight-line recovery period, or 40 years for property placed in service before 1 January 2018, with a mid-month convention. You depreciate the building in dollars, not the land, and on sale the depreciation allowed or allowable is taxed at up to 25%.
Why it is 30 years, not 27.5
US residential rentals are normally depreciated over 27.5 years under the general depreciation system (GDS), as IRS Publication 527 explains. That default does not apply to a flat in Lagos or a house in Abuja. Section 168(g)(1)(A) of the Internal Revenue Code applies the alternative depreciation system to "any tangible property which during the taxable year is used predominantly outside the United States", and section 168(g)(2)(C) sets the ADS recovery period for residential rental property at 30 years. Publication 527's ADS table shows 30 years, with a footnote that property placed in service before 1 January 2018 uses 40 years.
- Method
- Straight line
- Recovery period
- 30 years (40 if placed in service before 1 Jan 2018)
- Convention
- Mid-month: treated as placed in service or disposed of in the middle of the month
- Form
- Form 4562; total depreciation on Schedule E, Part I, line 18
- Not depreciable
- Land, including clearing and grading costs that are part of the land
Setting the basis
Basis is what you paid, in dollars. Publication 527 includes in basis the purchase price and certain settlement costs, such as legal, recording, survey, transfer and title insurance fees; points and loan charges are not included. When you buy land and building together, you split the cost by fair market value (or assessed values if fair market values are uncertain). Only the building share is depreciated.
Converting naira
The IRS says to convert each amount at the rate prevailing when it was paid and has no official rate; use a consistent source. If you built the house in stages from 2019 to 2024, each payment converts at its own date's rate, and the dollar total is your building cost. A house paid for when the naira was stronger can have a much higher dollar basis than its naira price suggests today. Keep the rate source with each receipt; see converting naira on a US return.
Converted from personal use
If the house was your family home or holiday home before you let it, the basis rules for property changed from personal to rental use apply, and the depreciable basis may be lower than what you paid. Publication 527 covers this; ask a preparer before the first year you claim.
Worked example (illustrative)
Land and a building in Ibadan cost ₦105,000,000 in total, paid when an example rate of ₦1,500 to $1 applied: $70,000. A valuer allocates 30% to land, so the building basis is $49,000 and the land $21,000. The house is let from 10 July.
| Year | Calculation | Depreciation |
|---|---|---|
| Annual full-year amount | $49,000 / 30 | $1,633.33 |
| Year 1 (July, mid-month) | $1,633.33 x 5.5 / 12 | $748.61 |
| Years 2 to 30 | Full year each | $1,633.33 |
| Year 31 | Remaining balance | $884.72 |
Check: $748.61 + 29 x $1,633.33 + $884.72 = $49,000 (rounded). Figures are examples. Improvements later, such as a new roof or an extra floor, are capitalised and depreciated separately over their own ADS period from when they are placed in service; repairs are deducted in the year paid.
When depreciation starts
Publication 527 says property is placed in service when it is ready and available for its specific use, even if no tenant has moved in. For a house built in Nigeria from abroad, that is usually when it is finished, connected and advertised for rent, not when the last payment to the contractor cleared and not when the first tenant paid. If construction drags on, costs keep adding to the basis until that date, and nothing is depreciated before it. Keep evidence of the date: the completion certificate, the agent's listing or a dated letter appointing the agent.
Costs that improve the property, such as an extra floor or a new roof, are capitalised and depreciated; ordinary repairs, cleaning, management fees, insurance and taxes are deducted in the year paid (Publication 527's list of rental expenses).
Claim it every year, because the IRS assumes you did
Publication 946 says you must reduce the basis of property by the depreciation "allowed or allowable, whichever is greater." In plain terms, if you forget to claim depreciation, your basis still goes down as if you had. On sale, IRS Topic 409 says unrecaptured section 1250 gain, the part of the gain from depreciation on real property, is taxed at up to 25%. Missing the deduction gives you the cost without the benefit. If you have missed years, a preparer can advise on correcting them.
Where depreciation fits on Schedule E
- Rent received, converted to dollars, on the income line for that property.
- Expenses: management fees, repairs, insurance, Land Use Charge and other taxes, and legal fees, each converted.
- Depreciation on line 18 from Form 4562.
- Nigerian income tax on the rent goes to the foreign tax credit (Form 1116), not Schedule E, if you choose the credit.
For the overall reporting picture see is Nigerian property reported to the IRS?, and for the returns arithmetic before you build, rental property returns math.
Where Pryme fits
Depreciation needs dated records. A Pryme account opened from the US can receive rent on naira account details and produce statements and verifiable receipts through VerifyDoc.ai (receipts). Conversions with Swap show the rate and fee before you approve, which gives you a dated rate for your file. See multicurrency accounts.
Questions people ask
How many years do I depreciate a rental property in Nigeria?
Thirty years under the alternative depreciation system for property placed in service after 2017, or 40 years if placed in service before 1 January 2018.
Why not 27.5 years like a US rental?
Section 168(g) requires ADS for tangible property used predominantly outside the United States.
Can I depreciate the land in Nigeria?
No. Land is not depreciable. Split the cost between land and building and depreciate only the building.
What happens if I never claimed depreciation?
Your basis is still reduced by the depreciation allowable, and on sale that portion can be taxed at up to 25%.
Sources
- 26 U.S. Code s.168, Accelerated cost recovery system (Cornell LII) · accessed Oct 2026
- IRS: Publication 527 (2025), Residential Rental Property · accessed Oct 2026
- IRS: Publication 946 (2025), How to Depreciate Property · accessed Oct 2026
- IRS: Topic no. 409, Capital gains and losses (reviewed 24 Sep 2026) · accessed Oct 2026
- IRS: Foreign currency and currency exchange rates (updated 22 May 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.