Rental Income Tax Calculator

Rental income is taxable in most countries, but landlords are entitled to deduct a wide range of expenses before calculating their taxable rental profit. Understanding these deductions can significantly reduce your tax liability — often to a fraction of gross rent collected.

Gross Rental Income

All money received from tenants counts as gross rental income:

• Monthly rent payments
• Advance rent (counted in year received)
• Lease cancellation fees
• Tenant-paid expenses (if landlord normally pays)

Security deposits are NOT rental income if held in trust and returned.

Allowable Rental Expense Deductions (US)

The IRS allows landlords to deduct ordinary and necessary expenses:

1. Mortgage interest: the largest deduction for most landlords
2. Property taxes: state and local real estate taxes
3. Insurance premiums: hazard, liability, flood, rental property insurance
4. Repairs and maintenance: must be repairs, not improvements
5. Property management fees: typically 8–12% of gross rent
6. Advertising and vacancy costs: listing fees, photography
7. Legal and professional fees: accountant, attorney fees for the rental
8. Utilities paid by landlord: water, trash, if included in rent
9. Travel to/from rental: at IRS standard mileage rate (current: 67 cents/mile in 2024)
10. Home office: if you manage property from a dedicated home office

Depreciation Deduction

One of the most valuable deductions for landlords is depreciation. The IRS allows you to deduct the cost of the building (not land) over 27.5 years:

Annual Depreciation = Purchase Price × (Building Value / Total Value) / 27.5

Example: A $300,000 property where $240,000 is the building: Annual Depreciation = $240,000 / 27.5 = $8,727 per year

This deduction is non-cash — you do not spend $8,727; you simply deduct it.

Net Rental Profit Formula

Net Taxable Rental Income = Gross Rent − All Expenses − Depreciation

Estimated Tax Owed = Net Income × Marginal Tax Rate

Note: Passive activity loss rules apply if net income is negative. This calculator provides estimates only. Consult a CPA for your specific situation.

Depreciation recapture, the catch when you sell

Depreciation is the most powerful annual deduction available to landlords. Every year you own the property, you get to deduct a chunk of the building value against rental income. But when you sell, the IRS reclaims it. The portion of gain that equals total depreciation taken is “recaptured” and taxed at a special rate of up to 25%, separately from regular long-term capital gains.

This is true even if you never actually claimed the depreciation: the IRS treats it as if you had (“allowed or allowable” doctrine). So always claim depreciation; you’ll pay the recapture tax on a sale either way, and the annual deduction is real money in your pocket meanwhile.

Strategies to defer or eliminate recapture include the 1031 like-kind exchange (rolling proceeds into another investment property) and step-up basis at death (heirs inherit the property at market value with depreciation reset). Keep meticulous records of accumulated depreciation; it determines your tax bill at sale.