Rental Income Tax Calculator
Calculate your net rental income after allowable deductions and estimate the tax owed on your investment property earnings. Use it at tax time or when evaluating whether a rental property is profitable after taxes.
About this calculator
Rental income is taxable, but the IRS allows landlords to deduct several expenses to reduce their taxable income. The key formula is: Net Rental Income = Gross Rental Income − Mortgage Interest − Operating Expenses − Depreciation. Gross rental income includes all rent collected during the year. Deductible operating expenses cover repairs, insurance, property management, and property taxes. Depreciation is a non-cash deduction based on the building's cost divided over 27.5 years (residential property). Tax liability is then: Tax = max(0, Net Rental Income) × Marginal Tax Rate — negative net income (a loss) results in zero tax liability, though losses may be deductible against other income subject to passive activity rules. Finally, after-tax net income = Net Rental Income − Tax Liability, giving you the true cash retained from your rental after taxes.
How to use
Suppose you collect $24,000/year in rent. Your deductible mortgage interest is $8,000, operating expenses (insurance, repairs, property tax) total $5,000, and annual depreciation is $4,545 (building value $125,000 ÷ 27.5). Net rental income = $24,000 − $8,000 − $5,000 − $4,545 = $6,455. With a 24% marginal tax rate, tax liability = $6,455 × 0.24 = $1,549. After-tax net income = $6,455 − $1,549 = $4,906. Despite collecting $24,000 in rent, your taxable income is only $6,455 and you keep $4,906 after taxes — illustrating how deductions dramatically reduce rental tax burden.
Frequently asked questions
What expenses can I deduct from rental income to reduce my tax liability?
The IRS allows landlords to deduct mortgage interest, property taxes, insurance premiums, repairs and maintenance, property management fees, advertising costs, legal and accounting fees, and utilities paid by the landlord. You can also deduct depreciation on the structure (not land) over 27.5 years for residential properties. Travel expenses related to managing the property may also qualify. Capital improvements, however, must be depreciated rather than expensed in the year incurred, and personal-use portions of a property must be prorated if it's not rented full-time.
How does depreciation work as a rental property tax deduction?
Depreciation lets you deduct a portion of the building's cost each year as it 'wears out,' even though it requires no cash outlay. For residential rental property, the IRS uses a 27.5-year straight-line schedule: annual depreciation = building value ÷ 27.5. Only the structure qualifies — land is not depreciable. Depreciation is one of the most powerful rental tax benefits because it reduces taxable income without reducing cash flow. However, when you sell the property, the IRS 'recaptures' depreciation at a 25% rate, so it defers rather than eliminates the tax.
Can rental property losses offset my regular income on my tax return?
Rental losses can offset other income, but passive activity rules limit this for most taxpayers. If your adjusted gross income (AGI) is under $100,000 and you actively participate in managing the rental, you can deduct up to $25,000 in rental losses against ordinary income. This allowance phases out between $100,000 and $150,000 AGI. Real estate professionals who spend more than 750 hours annually in real estate activities can deduct losses without limit. Losses that cannot be used in the current year are carried forward to offset future rental income or gains upon sale of the property.