Rental property tax calculator
Estimate the income tax on a year of rental income. Enter the rent, your operating expenses, mortgage interest and depreciation, with your own tax rates. The results show your net rental income, the tax on it, how much depreciation lowers that tax and the cash left after expenses, interest and tax.
Your results
EstimateEstimated tax on the rental income: $836.00
- Net rental income (taxable)
- $3,800.00
- Total rental income
- $24,000.00
- Total deductions
- $20,200.00
- Federal income tax
- $836.00
- Net investment income tax
- $0.00
- State tax
- $0.00
- Tax saved by depreciation
- $1,540.00
- Tax as a share of rental income
- 3.48%
- Cash after expenses, interest and tax
- $9,964.00
- An estimate for planning. It applies the rates you enter to the net rental income, and leaves out your other income, the passive activity loss rules and the qualified business income deduction. It is general information and is not tax advice. Check the numbers with a tax professional before you file.
Results are estimates for planning only. They are not legal, tax or investment advice, and they apply no state or local rules. Check your lease, your local laws and a qualified professional before you rely on a number.
How tax on rental income is calculated
Net rental income = rent + other rental income - operating expenses - mortgage interest - depreciation; tax = net rental income x your tax rate
Rental income is taxed on what is left after deductions, the way Schedule E adds it up. Income is the rent you received during the year, including advance rent, plus amounts such as late fees and any part of a deposit you kept for unpaid rent or damage. Deductions are the ordinary costs of running the rental: property tax, insurance, repairs, management, utilities you pay, HOA fees, mortgage interest and depreciation.
Loan principal and improvements are left out of the year's deductions. Principal repays the loan, and an improvement, such as a new roof, is depreciated over the years the property is in service. For a residential rental, the building, without the land, is usually depreciated over 27.5 years, so depreciation lowers the tax each year without costing cash that year.
A positive net rental income is added to your other income and taxed at your rate. At the federal level that is your bracket: 10%, 12%, 22%, 24%, 32%, 35% or 37%. The net investment income tax adds 3.8% for people with income above certain levels, and many states tax rental income too. A loss is shown as no tax here; whether it can lower the tax on your other income depends on the passive activity loss rules.
The rates in the example are examples only. This calculator applies one rate to the whole net income, so it leaves out the way brackets step up, your other income, the passive activity loss rules and the qualified business income deduction. Depreciation you take is generally taxed again when you sell, as depreciation recapture. It is general information and is not tax advice, so check the numbers with a tax professional before you file.
Worked example
A single-family rental brings in $2,000 a month, $24,000 for the year, with no other rental income. Operating expenses come to $7,200 and the mortgage interest to $6,000. The building cost $192,500 without the land, so a full year of depreciation is $192,500 / 27.5 = $7,000. As an example, your federal rate is 22%; the net investment income tax and state tax are left out.
- Total deductions: $7,200 + $6,000 + $7,000 = $20,200.
- Net rental income: $24,000 - $20,200 = $3,800.
- Estimated tax: $3,800 x 22% = $836.
- Without depreciation, the net income would be $24,000 - $7,200 - $6,000 = $10,800 and the tax $10,800 x 22% = $2,376, so depreciation saves $2,376 - $836 = $1,540.
- Cash after expenses, interest and tax: $10,800 - $836 = $9,964, before loan principal.
- Tax as a share of rental income: $836 / $24,000 = 3.48%.
The estimated tax on the year's rental income is $836.00, 3.48% of $24,000.00 of rent. Depreciation saves $1,540.00, and $9,964.00 of cash is left after expenses, interest and tax.
Frequently asked questions
How is rental income taxed?
You pay income tax on net rental income: the rent and other rental income for the year, less operating expenses, mortgage interest and depreciation. That amount is added to your other income and taxed at your rate. In the example, $24,000 of rent less $20,200 of deductions leaves $3,800, an estimated $836 of federal tax at 22%.
How does depreciation lower the tax on rental income?
Depreciation is a deduction for the building wearing out, spread over 27.5 years for a residential rental, and it costs no cash in the year you take it. In the example, $7,000 of depreciation brings the taxable income from $10,800 to $3,800 and the tax from $2,376 to $836, a saving of $1,540. It is generally taxed again as depreciation recapture when you sell.
What if my rental shows a loss?
A loss means no income tax on the rental for the year. Rental losses are generally passive. Under the passive activity rules, many owners who actively participate can deduct up to $25,000 of rental losses against other income, an allowance that shrinks as modified adjusted gross income rises from $100,000 and is gone at $150,000. Losses you cannot use carry forward. A tax professional can tell you how the rules apply to you.
Do I pay self-employment tax on rental income?
Generally not. Rental income reported on Schedule E is usually not subject to self-employment tax. It can be when you provide substantial services to tenants, such as regular cleaning or meals, which makes it closer to running a hotel. Ask a tax professional if that describes your rental.
Is rental income taxed by my state?
In most states, yes. States with an income tax generally tax net rental income, and the state where the property sits may tax it even if you live elsewhere. Enter your state rate to add it to the estimate.
Keep the records your tax return is built from
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