Rental income tax calculator

Taxable rental income is the rent you received minus deductible expenses and depreciation. Depreciation spreads the cost of the building, not the land, over 27.5 years. In a full year that is 3.636 % of the building basis. In the first year it depends on the month you started renting.

A profit is added to your other income and taxed at your federal rates, so the calculator shows the extra tax it causes. Above $200,000 of income ($250,000 joint), the 3.8 % Net Investment Income Tax is added.

A loss lowers your other income by up to $25,000 if you actively manage the property. The allowance shrinks by $1 for every $2 of income above $100,000. A loss you cannot use now carries forward to later years or to the sale.

• Federal taxes only. State and local income tax is not included.
• One residential rental property rented at fair rent all year, with no personal use. You take the standard deduction.
• Depreciation is the building basis (not the land) over 27.5 years, straight line, with the mid-month convention from IRS Publication 946, Table A-6.
• Expenses are the deductible operating costs: mortgage interest, property tax, insurance, repairs, management and similar. Mortgage principal is not deductible.
• Rental activity is passive. A loss is deductible up to $25,000 if you actively participate, reduced by half of your income above $100,000 and gone at $150,000. The rest carries forward. Married filing separately and real estate professional status are not modeled.
• Net rental profit is also subject to the 3.8 % Net Investment Income Tax when your income is above $200,000 (single, head of household) or $250,000 (married filing jointly).
• The 20 % QBI deduction, which some rental businesses can claim, and depreciation recapture when you sell are not included.

How is rental property depreciation calculated?

Take the building cost without the land and divide it by 27.5 years. A $275,000 building gives about $10,000 a year. The first and last years are prorated by month.

Can a rental loss reduce the tax on my salary?

Yes, up to $25,000 a year if you actively participate and your modified adjusted gross income is below $100,000. Between $100,000 and $150,000 the limit shrinks, and above $150,000 the loss carries forward instead.

Is mortgage interest deductible on a rental?

Yes. Mortgage interest, property tax, insurance, repairs and management fees are rental expenses. The principal part of the payment is not deductible.

Do I pay tax on depreciation when I sell?

Yes. The depreciation you took, or could have taken, is taxed at up to 25 % when you sell. This calculator covers the yearly tax only.

• www.irs.gov/publications/p527
• www.irs.gov/publications/p946
• www.irs.gov/publications/p925
• www.irs.gov/individuals/net-investment-income-tax
• www.irs.gov/pub/irs-drop/rp-25-32.pdf
• www.irs.gov/pub/irs-drop/rp-24-40.pdf