Rental Income Tax Calculator

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Frequently Asked Questions

How is rental income taxed?

Rental income is taxed as ordinary income at your marginal tax rate. You report rental income on Schedule E (Form 1040). You can deduct expenses such as mortgage interest, property taxes, insurance, repairs, maintenance, HOA fees, property management fees, utilities, and depreciation.

What rental expenses are deductible?

Deductible rental expenses include: mortgage interest, property taxes, insurance, repairs and maintenance, HOA fees, property management fees, utilities paid, advertising, legal fees, travel expenses for property management, and depreciation (27.5 years for residential property).

How does rental property depreciation work?

Residential rental property is depreciated over 27.5 years using straight-line depreciation. For example, a $275,000 building (not land) depreciates at $10,000 per year. This non-cash deduction can offset rental income, reducing taxes without reducing cash flow.

What is the passive activity loss rule?

Rental real estate is generally treated as a passive activity. Passive losses can only offset passive income, not active income (wages, business income). However, active real estate professionals and those with MAGI under $150,000 may deduct up to $25,000 in rental losses against other income.

What is the difference between active and passive rental income?

Rental income is generally passive unless you are a real estate professional (spending 750+ hours and 50%+ of work time in real estate). Active participation (qualifying for $25,000 loss deduction) requires owning at least 10% and making management decisions.

How is short-term rental (Airbnb) income taxed?

Short-term rental income is generally reported on Schedule E if average rental period is 7 days or less. Short-term rentals have different tax treatment than long-term rentals. Expenses are deductible, and the passive activity rules may apply differently.

What is the 14-day rule for rental income?

If you rent out your property for 14 days or fewer per year, the rental income is tax-free. You do not need to report it. However, you cannot deduct any rental expenses either. This rule applies to vacation homes rented for short periods.

How is personal use of rental property taxed?

If you use your rental property personally for more than 14 days or 10% of rental days (whichever is greater), it is treated as a personal residence. Expenses must be allocated between personal and rental use. Personal use days do not qualify for rental deductions.

What is the qualified business income deduction for rental property?

Rental real estate may qualify for the Section 199A deduction (20% of QBI). The IRS issued safe harbor rules allowing rental properties to qualify if they meet specific requirements: separate records, 250+ hours of rental services per year, and a written management agreement.

How do I report rental income on my tax return?

Report rental income and expenses on Schedule E (Supplemental Income and Loss). The net income or loss is transferred to Form 1040. Depreciation is calculated using Form 4562. If you sell, report the sale on Form 4797 and Schedule D.

What is the tax treatment of security deposits?

Security deposits are not included in rental income if they are intended to be returned at the end of the lease. If you retain any portion of the deposit for damages or unpaid rent, the retained amount becomes taxable rental income in the year retained.

How is rental property sale taxed?

When you sell a rental property, you pay capital gains tax on the appreciation. Depreciation recapture (Section 1250) is taxed at 25% on the amount of depreciation claimed. The remaining gain is taxed at long-term capital gains rates (0%, 15%, or 20%).

What is a 1031 exchange?

A Section 1031 exchange allows you to defer capital gains taxes by reinvesting proceeds from a rental property sale into a like-kind property. You must identify replacement property within 45 days and complete the purchase within 180 days. Tax is deferred, not eliminated.

How does the $25,000 rental loss deduction work?

If you actively participate in managing your rental property and your MAGI is $100,000 or less, you can deduct up to $25,000 of rental losses against other income. The deduction phases out between $100,000 and $150,000 MAGI.

What expenses are not deductible for rental property?

Non-deductible expenses include: principal payments on mortgage, cost of improvements (must be depreciated), your own labor, travel for property improvement (not management), and personal use portion of mixed-use expenses.

How do repairs vs improvements differ for taxes?

Repairs that keep your property in good working condition (fixing leaks, painting, patching holes) are fully deductible in the current year. Improvements that add value or extend useful life (new roof, addition, new HVAC) must be depreciated over the applicable recovery period.

How is rental income taxed if I have a mortgage?

Mortgage interest on rental property is fully deductible against rental income. Principal payments are not deductible. The interest deduction is reported on Schedule E. Property taxes are also deductible as rental expenses.

What is the vacation home tax rule?

Vacation homes are subject to special rules. If personal use exceeds 14 days or 10% of rental days, the property is treated as a personal residence. Deductions are limited, and losses cannot be claimed. If personal use is minimal, standard rental rules apply.

How does renting out a room in my home work for taxes?

If you rent out a room in your home, you report the income on Schedule E. Expenses are allocated based on the percentage of square footage used for rental. If you rent for fewer than 15 days, the income is tax-free under the 14-day rule.

What is the tax on rental income from a co-living arrangement?

Co-living rental income is taxed as ordinary income. Each tenants rent is reported. Expenses are allocated proportionally. House rules and shared spaces may affect the classification for tax purposes. Consult a tax professional for complex arrangements.

Can I deduct my rental property management company fees?

Property management fees are fully deductible as an operating expense on Schedule E. This includes fees for tenant placement, monthly management fees, leasing commissions, and eviction costs. These are reported as ordinary rental expenses.

How is rental income from commercial property taxed?

Commercial rental income is taxed at ordinary rates, similar to residential rental income. Commercial property is depreciated over 39 years (vs 27.5 for residential). Commercial leases often have different expense structures (NNN, gross, modified gross).

What is the tax treatment of rent concessions?

Rent concessions (free months, reduced rent) reduce the effective rental income. Report the actual rent received, not the stated rent. Concessions must be properly documented in the lease agreement and accounted for in your tax records.

How do I handle rental income from family members?

Renting to family members at fair market value is treated like any other rental. Renting below market value may result in the property being classified as personal use, limiting deductions. Claiming losses on below-market rentals to family is scrutinized by the IRS.

What is the tax impact of selling rental property with depreciation recapture?

Depreciation recapture taxes the amount of depreciation claimed (or allowable) at a maximum rate of 25%. The remaining gain (sales price minus adjusted basis) is taxed at long-term capital gains rates. Total tax on rental property sales can be substantial.

Can I deduct home equity loan interest on rental property?

If a home equity loan is used to improve or maintain the rental property, the interest is deductible as a rental expense. If used for personal purposes, the interest may not be deductible under the Tax Cuts and Jobs Act rules.

What records should I keep for rental property taxes?

Keep records of: rental income received, expense receipts, depreciation schedules, lease agreements, property purchase and sale documents, improvement vs repair documentation, mileage for property management, and insurance policies. Retain records for at least 7 years.

How does renting below fair market value affect taxes?

Renting below fair market value can limit expense deductions to the amount of rental income (no loss allowed). The IRS may reclassify the property as personal use. Always document the fair market value rent for your area to support your rental rate.

What is the net rental income formula?

Net Rental Income = Gross Rental Income - Vacancy Allowance - Operating Expenses - Mortgage Interest - Depreciation - Property Management Fees. Net income is taxable, while net losses may be deductible subject to passive activity loss limitations.

How do I calculate rental property tax liability?

Calculate net rental income (rent minus all deductible expenses including depreciation). Add to other income. Compute tax at your marginal rate. Consider NIIT (3.8% on investment income over $200k/$250k). Factor in state taxes. Use our calculator for an estimate.