Rental Income Tax Calculator

Quick summary

Rental income is taxed under IRS Schedule E, but the actual numbers depend on five interlocking rules that most landlords get wrong. This calculator handles all of them.

It applies the 27.5-year straight-line depreciation on the building basis (a non-cash deduction that often turns positive cash flow into a paper loss), the passive activity loss rules under IRC §469 (up to $25,000 active loss against W-2 if AGI < $100K, phased out by $150K), the 20% QBI deduction if rental qualifies as a trade or business, the 3.8% NIIT if MAGI exceeds threshold, and a separate path for Real Estate Professional Status (REPS) — the only way to use rental losses against W-2 income above the income cap.

Use it before tax season to model: should I cost-segregate to accelerate depreciation? Am I close to qualifying as a Real Estate Professional? Will my MAGI cross the NIIT line?

Filing status

Active role in rental

REPS: 750+ hrs/yr in real property trade + 50% of personal services. Active: makes mgmt decisions.

Affects loss scenarios only — IRS Passive Activity Loss (PAL) rules. If your rental shows a profit, results are identical for all three options.

Annual gross rent

Operating expenses

Insurance, prop tax, mgmt, repairs, HOA

Mortgage interest paid

Building basis (excl. land)

Depreciated over 27.5 years

Other ordinary income

State income tax rate

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How to use

1 Enter annual gross rental income from all units.
2 Enter operating expenses (property tax, insurance, HOA, management 8-10%, repairs, utilities) and mortgage interest (deductible separately on Schedule E).
3 Enter the building basis (purchase price MINUS land value — typically 70-85% of purchase). The calculator applies 27.5-year straight-line depreciation automatically.
4 Pick filing status (Single/MFJ/HoH/MFS), enter your other ordinary income (W-2, 1099), and choose your active role: Passive (default), Active (>$25K rule), or Real Estate Professional Status.
5 Click Calculate to see net rental income, deductible vs. suspended losses, QBI deduction, federal tax, NIIT, state tax, total tax, and after-tax cash flow.

Schedule E — How Rental Income Is Reported

All US rental property income is reported on IRS Schedule E (Form 1040). The structure is straightforward: gross rents minus deductible expenses minus depreciation = net rental income (or loss), which flows to Form 1040 line 5.

Schedule E Line	Item	Notes
Line 3	Gross rents received	Cash basis — what tenants paid in 2026
Line 5-19	Operating expenses	Insurance, taxes, repairs, mgmt, utilities, supplies
Line 12	Mortgage interest	From Form 1098 issued by lender
Line 18	Depreciation	27.5 yr residential / 39 yr commercial — Form 4562
Line 21	Net rental income (or loss)	Subject to passive loss rules §469

Passive Activity Loss Rules (IRC §469)

Rental real estate is by default passive regardless of how much you participate. This means losses only offset passive income (other rentals, certain investments). The $25,000 special allowance is the major exception:

AGI Range	Active Loss Allowed	Notes
Under $100,000	Up to $25,000 against W-2	Requires "active participation" — making management decisions
$100,000 - $150,000	Phased out 50¢ per $1 above $100K	$130K AGI → $10K loss allowed
Over $150,000	$0 active loss allowed	All losses suspended, carry forward
Real Estate Pro	Unlimited (against any income)	750 hr/yr + 50% of personal services rule

Real Estate Professional Status (REPS)

REPS is the only way to deduct unlimited rental losses against W-2 or business income above the $150K phase-out. To qualify, you must meet BOTH tests:

Test	Threshold	How to Document
Hours Test	750+ hours/year in real estate	Time log — calendar entries, app-tracked
50% Test	>50% of all working hours in real estate	If W-2 job is 2,080 hrs, must do 2,081+ hours real estate
Material Participation	500+ hours per property OR aggregation election	File aggregation election to count all rentals together

QBI Deduction (Section 199A) for Rentals

Rental real estate may qualify for the 20% Qualified Business Income deduction if it rises to a "trade or business." IRS Notice 2019-07 provides a safe harbor: 250+ hours of rental services per year (per enterprise), separate books, separate bank account, and contemporaneous time records. The deduction phases out above $241,950 single / $483,900 MFJ for 2026.

Cost Segregation — Accelerated Depreciation

Default 27.5-year depreciation puts the entire building on the same recovery period. Cost segregation uses an engineering study to reclassify ~20-30% of basis into 5/7/15-year property (carpet, appliances, landscaping, parking lot). Combined with bonus depreciation (40% in 2026, phasing down to 20% in 2027), this front-loads depreciation deductions in the first year of ownership — particularly powerful for Real Estate Professionals.

FAQ

Q How is rental income taxed in the US?

Rental income is reported on Schedule E. You deduct operating expenses, mortgage interest, and 27.5-year straight-line depreciation. Net rental income is taxed at ordinary income rates (10-37% federal in 2026), plus state tax, plus 3.8% NIIT if MAGI is high.

Q How much depreciation can I take on a rental property?

Residential rental: divide the building basis (purchase price minus land) by 27.5 years for straight-line depreciation. Example: $300K building basis = $10,909/year. Commercial: 39 years. Cost segregation accelerates this by reclassifying components into shorter 5/7/15-year periods.

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

Up to $25,000 if your AGI is under $100,000 and you "actively participate" (make management decisions). The allowance phases out by 50¢ per dollar of AGI above $100,000, fully gone at $150,000. Real Estate Professionals can deduct unlimited losses against any income.

Q What is Real Estate Professional Status (REPS)?

A tax classification that lets you treat rental losses as non-passive — unlimited deduction against W-2 and business income. Two tests: 750+ hours per year in real estate AND >50% of total working hours in real estate. Requires material participation in each rental (500+ hrs) or aggregation election.

Q Do rental property owners get the 20% QBI deduction?

Maybe. Rental real estate qualifies if it rises to a trade or business. IRS Notice 2019-07 provides a safe harbor requiring 250+ hours of rental services annually, separate books and bank account, and contemporaneous time records. Above $241,950 single / $483,900 MFJ, the deduction phases out.

Q Is rental income subject to NIIT?

Yes — 3.8% on net rental income if MAGI exceeds $200,000 single / $250,000 MFJ. The exception: Real Estate Professionals with material participation are NOT subject to NIIT, since rental income for REPS is non-passive trade or business income.

Q What expenses are deductible for rental property?

Property tax, insurance, mortgage interest, HOA, utilities (if owner-paid), management fees (8-10% typical), repairs (NOT improvements), advertising, travel to property, legal/accounting, supplies, depreciation. Improvements are capitalized and depreciated. Schedule E lines 5-19 list the categories.

Q What happens to suspended rental losses?

Passive losses you couldn't deduct in the current year are suspended and carried forward indefinitely. They release on (a) future passive income from any rental, (b) full disposition of that property in a taxable sale, or (c) qualifying as a Real Estate Professional in a later year.