Rental Property Tax Calculator — Schedule E, Depreciation, QBI, Cost Seg

Number of investment properties

Combined market value

Combined annual rent

Combined operating expenses

Combined mortgage interest

Combined cost basis

Land allocation %

Land doesn''t depreciate

Federal marginal rate

State income tax rate

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How to use

1 Enter total number of properties and combined market value across the portfolio.
2 Enter combined annual rental income and operating expenses (property tax, insurance, management, repairs, vacancy).
3 Enter combined annual mortgage interest paid (deductible on Schedule E).
4 Enter total building basis (purchase price minus land value). Land is typically 15-25% of value depending on market.
5 Enter your federal marginal tax rate and state income tax rate. Click Calculate to see depreciation, QBI deduction, total tax, and cash flow vs. taxable income (showing the phantom loss benefit).

Schedule E Rental Reporting

Rental real estate income is reported on IRS Schedule E (Form 1040). Each property is a separate column. Income includes rent, lease cancellation fees, security deposits forfeited, and tenant-paid expenses (utilities, repairs). Deductible expenses include mortgage interest, property tax, insurance, repairs, management fees, vacancy reserves, and depreciation.

27.5-Year Residential Depreciation

Residential rental property depreciates over 27.5 years straight-line (commercial: 39 years). Only the building portion depreciates — land is non-depreciable. Cost basis allocation: typically 75-85% building, 15-25% land. So a $400,000 rental with 20% land = $320,000 building basis ÷ 27.5 = $11,636/year depreciation. Phantom loss: if your rental cash flow is +$8,000/year, your reported tax loss is −$3,636 — sheltering income.

Section 199A QBI Deduction (20%)

Rental real estate qualifies for the Qualified Business Income (QBI) deduction — up to 20% of qualified rental income. To qualify, the rental activity must rise to the level of a "trade or business" — easiest path is the Notice 2019-07 safe harbor: 250+ hours per year of rental services. 2026 phase-out: single $50K-$75K, MFJ $100K-$150K above threshold.

Passive Activity Loss (PAL) Rules

Status	Loss treatment
Active participation, MAGI under $100K	Up to $25,000/year loss against ordinary income
Active participation, MAGI $100K-$150K	Phase-out: $25K reduces $1 per $2 over $100K
Active participation, MAGI over $150K	$0 — losses suspended, carry forward
Real Estate Professional Status (REPS)	Unlimited loss against ordinary income (750+ hours, more than half time)
Sale of property	Suspended losses release in year of sale

Cost Segregation

Engineering study reclassifies portions of building cost basis from 27.5-year to 5-, 7-, and 15-year property (carpet, appliances, land improvements). Typically 20-30% of building basis. OBBBA (One Big Beautiful Bill Act, 2025) permanently restored 100% bonus depreciation for property placed in service after January 19, 2025 — meaning the 5/7/15-year components can be fully expensed in year 1. For a $400K rental with $80K (25%) reclassified, that's $80K immediate first-year deduction — typically saving $20K-$30K in taxes upfront.

3.8% Net Investment Income Tax (NIIT)

High-income investors (MAGI over $200K single / $250K MFJ) pay an additional 3.8% NIIT on net rental income. Real Estate Professionals (REPS) who materially participate are exempt from NIIT on rental income — a major reason high-earner real estate investors pursue REPS qualification.

FAQ

Q How is rental property taxed in the US?

On Schedule E (Form 1040). Rental income minus operating expenses, mortgage interest, and depreciation = taxable rental income. Profits taxed at your marginal rate (10-37%) plus state. Section 199A may give 20% QBI deduction. Section 1031 allows tax-deferred exchanges. Real estate professionals can deduct unlimited losses against W-2 income.

Q What is the 27.5-year depreciation rule?

IRS requires residential rental buildings to be depreciated over 27.5 years straight-line (commercial: 39 years). Land is non-depreciable. So a $400K rental (75% building) generates $10,909/year depreciation deduction — typically creating "phantom loss" that shelters cash flow from tax. Recapture on sale at 25% rate.

Q Can I deduct rental losses against my W-2 income?

Limited. Active participants under $100K MAGI: up to $25K/year loss allowance. Phases out $100K-$150K MAGI. Above $150K: losses suspended, carry forward to offset future passive income or release at sale. Real Estate Professional Status (REPS) — 750+ hours, more than half time — bypasses limits entirely.

Q What is the Section 199A QBI deduction for rentals?

Up to 20% of net rental income deductible. Rental must qualify as "trade or business" — easiest via Notice 2019-07 safe harbor (250+ hours/year of rental services, separate books, document hours). Phase-out at higher incomes: 2026 single $50K-$75K, MFJ $100K-$150K above threshold. Major tax saving for active landlords.

Q What is cost segregation and is it worth it?

Engineering study reclassifies 20-30% of building basis from 27.5-year to 5/7/15-year property. With 100% bonus depreciation (permanent under OBBBA 2025), that 20-30% portion can be fully expensed year 1. Cost: $5K-$15K for the study. Worth it for properties over $500K with 24%+ marginal tax bracket — typical first-year savings $20K-$50K.

Q What is REPS (Real Estate Professional Status)?

IRS designation requiring: (1) more than half of total work hours in real estate trades/businesses, AND (2) 750+ hours/year. If you have a full-time W-2 job, you typically can't qualify (you'd need 750+ in real estate AND fewer than that in W-2). Spouse with no W-2 job often qualifies. Major benefit: unlimited rental loss against W-2 + NIIT exemption.

Q Do I owe Net Investment Income Tax (NIIT) on rental?

3.8% NIIT applies to net rental income for high earners (MAGI over $200K single / $250K MFJ). Effective top federal rate: 37% + 3.8% = 40.8%. REPS who materially participate are exempt — another reason to pursue REPS for high-earning landlords. Plus state income tax on top.

Q How does Section 1031 exchange work?

Sell investment real estate, defer capital gains by acquiring "like-kind" replacement property. Strict timeline: identify replacement within 45 days, close within 180 days. Use Qualified Intermediary to hold proceeds. No personal residence — investment only. Cumulative deferral until eventual sale. Step-up basis on death wipes out gains entirely if held until death.