Rental Income Tax Calculator
Calculate the true tax cost of your rental income — Schedule E deductions, passive-loss allowance, the 3.8% NIIT, and your actual after-tax profit.
By Sammy S. · Founder · AuthorUpdated for 2026
How it works
Enter rental income
Total annual rent collected from all your rental properties.
Add Schedule E expenses
Mortgage interest, taxes, insurance, repairs, and depreciation.
See your real tax bill
Net income, federal + state tax, NIIT, and passive-loss impact — instantly.
Rental property details
Schedule E · income & expenses
Total rent collected from all rental properties before any deductions.
From your Form 1098.
Landlord/hazard insurance premium.
Routine repairs only. Improvements are depreciated.
Property value ÷ 27.5 years. Land is not depreciable.
Property manager fees, typically 8–12% of rent.
Advertising, legal/professional fees, utilities, travel, etc.
Used to determine your marginal tax bracket for rental income.
Usually close to your gross income. Affects the $25k passive-loss allowance and 3.8% NIIT.
Real Estate Professional
Qualify as a real estate professional (≥750 hrs/yr and more than half your work time)? Your rental losses are non-passive and fully deductible.
Disallowed losses carry forward to future years.
Source: IRS Rev. Proc. 2025-32 · Single filer after $16,100 standard deduction
Source: IRS §1411 · Rate is 3.8% on net investment income
Schedule E Deductible Expenses
| Expense | Deductible? | Notes |
|---|---|---|
| Mortgage Interest | Yes | 100% deductible; get amount from Form 1098. |
| Property Taxes | Yes | Full amount deductible on Schedule E (no $10k SALT cap for rentals). |
| Insurance | Yes | Landlord/hazard policy premiums. |
| Repairs & Maintenance | Yes | Routine repairs only. Improvements must be depreciated. |
| Depreciation | Yes | Building value ÷ 27.5 years. Land is not depreciable. |
| Management Fees | Yes | Property manager fees (typically 8–12% of rent). |
| Advertising | Yes | Listing fees, signage, photography. |
| Legal / Professional | Yes | Attorney or CPA fees related to the rental. |
| Capital Improvements | Depreciated | New roof, HVAC, additions — must be depreciated, not expensed. |
| Personal Expenses | No | Personal use portions of a mixed-use property are non-deductible. |
Source: IRS Publication 527 · Consult a tax professional for property-specific advice.
How the calculator works
Schedule E net income: We subtract all deductible expenses from gross rental income. A positive result is taxable rental profit; a negative result is a rental loss subject to passive-activity rules.
Passive-loss allowance: Active-participation landlords can deduct up to $25,000 of rental loss against ordinary income. Phases out $1:$2 for MAGI $100k–$150k (or $50k–$75k for married filing separately). Real estate professionals face no cap.
Federal & state tax: We use the marginal method — tax on your other income alone versus tax on other income plus net rental income. The difference is the actual tax attributable to the rental, using 2026 brackets.
NIIT: If net rental income is positive and your MAGI exceeds the threshold, we add 3.8% on the rental profit per IRS §1411. State taxes use progressive brackets from our built-in state tax engine.
Common Rental Tax Scenarios
The 20% QBI deduction (§199A) for rental income: the Rev. Proc. 2019-38 safe harbor, 250-hour requirement, 2026 income thresholds, and why triple-net leases are excluded
Source: IRC §199A; IRS Revenue Procedure 2019-38; IRS Rev. Proc. 2025-32 (2026 thresholds); IRS.gov §199A safe harbor news release
Net rental income can qualify for the §199A Qualified Business Income (QBI) deduction — up to 20% of net rental income deducted from your taxable income. But rental activity does not automatically qualify as a "trade or business." IRS Revenue Procedure 2019-38 created a safe harbor to provide certainty, and rental income can also qualify under a facts-and-circumstances test even if the safe harbor isn't met.
Rev. Proc. 2019-38 safe harbor requirements (all three must be met)
- Separate books and records: maintain distinct income and expense records for each rental real estate enterprise (you may aggregate multiple properties into one enterprise)
- 250 hours/year of rental services: hours performed by you, employees, agents, and contractors all count. For properties held ≥4 years, the 250-hour test need only be met in 3 of the past 5 years
- Contemporaneous time records: logs documenting (1) hours of all services, (2) description of services, (3) dates services were performed, and (4) who performed them — maintained throughout the year
- Statement attached to return: a statement identifying the properties must be attached to a timely filed original return for each year the safe harbor is claimed
Safe harbor exclusions — these do NOT qualify:
- Triple-net (NNN) leases: where the tenant pays property taxes, insurance, and maintenance — explicitly excluded from the safe harbor (but may still qualify under facts-and-circumstances)
- Personal residences rented out temporarily
- Property rented to a commonly controlled business (self-rental rules may still allow deduction via the self-rental grouping rule)
What counts as "rental services" for the 250-hour test?
- Advertising vacancies and screening tenants
- Negotiating and executing leases
- Verifying tenant applications
- Collecting rents
- Daily operation, maintenance and repair of the property
- Management of the enterprise
- Purchasing materials
- Supervising employees and contractors
Does NOT count: investor-type activities such as arranging financing, reviewing financial statements, or planning long-term strategy.
| 2026 taxable income | Single filer | Married filing jointly | Deduction available |
|---|---|---|---|
| Under threshold | ≤ $201,750 | ≤ $403,500 | Full 20% of QBI — no W-2/property limits |
| Phase-in range | $201,750 – $276,750 | $403,500 – $553,500 | Partial — W-2 wage and UBIA of qualified property limits phase in |
| Above phase-in | > $276,750 | > $553,500 | Limited to 50% of W-2 wages paid OR 25% of W-2 wages + 2.5% of UBIA of qualified property — highly favorable for real estate with high property basis |
Important: The QBI deduction reduces your regular income tax but does not reduce the 3.8% NIIT — the NIIT is calculated on net investment income independently. Source: IRS Rev. Proc. 2025-32 (2026 thresholds); IRS §199A regulations.
Depreciation recapture when you sell: §1250 unrecaptured gain taxed at up to 25%, the "allowed or allowable" trap, Form 4797 mechanics, and how §1031 exchanges defer the recapture
Source: IRC §1(h)(1)(D); IRS Publication 544 (2025); IRS Topic No. 409; Form 4797 Instructions 2026; IRS Publication 946
Depreciation is the most powerful tax shelter for rental owners — but it comes with a future cost. When you sell a rental property, every dollar of depreciation you claimed (or should have claimed) is recaptured by the IRS and taxed at a special rate that can reach 25% federally — higher than the 15% or 20% long-term capital gains rate that applies to the rest of your profit.
Sale example: full tax breakdown
Purchase price: $300,000
Land allocated (20%): $60,000
Building basis: $240,000
Held 10 years → depreciation: $87,273
($240,000 ÷ 27.5 × 10 yrs)
Adjusted basis: $300,000 - $87,273 = $212,727
Sale price: $380,000
Total gain: $380,000 - $212,727 = $167,273
§1250 unrecaptured gain: $87,273
→ taxed at up to 25% federal
→ at 25%: $21,818 in recapture tax
Long-term cap gain: $80,000
→ taxed at 0% / 15% / 20%
→ at 15%: $12,000
Total federal tax on sale: ≈ $33,818
The "allowed or allowable" trap — you owe it even if you didn't claim it
Under IRC §1016(a)(2) and IRS Publication 946: your adjusted basis is reduced by depreciation allowed or allowable, whichever is greater. If you forgot to claim depreciation for 3 years, your basis is still reduced as if you had — and you owe recapture tax on it at sale anyway, without ever having received the tax benefit.
Solution: file amended returns for missed depreciation before the sale to at least capture the current-year benefit.
Tax strategies to defer or reduce recapture
- §1031 like-kind exchange: defer ALL gain (including §1250 recapture) by rolling proceeds into a replacement property within 45/180 days. Recapture carries into the new property's basis
- Installment sale: ordinary §1250 recapture tax is owed in full in the year of sale — it cannot be deferred. The long-term capital gains portion can be spread over installment payments
- Opportunity Zone investment: invest sale proceeds in a Qualified Opportunity Zone Fund within 180 days to defer capital gains tax (not recapture) until 2027
- State rates: California and several other states do not recognize the 25% recapture cap — they tax all gain (including depreciation recapture) as ordinary income at state rates
Real estate professional (REP) status: the 750-hour dual test, the critical §469(c)(7)(A) grouping election, and why it's one of the most-audited tax positions in real estate
Source: IRC §469(c)(7); IRS Publication 925; IRS Tax Topic 425; IRS Audit Technique Guide — Passive Activity Losses
Real estate professional (REP) status under IRC §469(c)(7) is the most powerful tool for high-income landlords — it converts rental losses from passive (capped at $25,000) to non-passive (unlimited deduction against any income). But the requirements are strict, and the IRS scrutinizes REP claims heavily.
The two-part test (BOTH must be met each year)
Test 1: More than 750 hours
You must perform more than 750 hours of services in real property trades or businesses in which you materially participate. "Real property trades or businesses" include real estate development, construction, acquisition, conversion, rental, management, leasing, and brokerage.
Test 2: More than 50% of total working time
More than half of all personal services you performed during the year must be in real property trades or businesses. A W-2 employee working 2,000 hours in another field would need 2,001+ hours in real estate — nearly impossible to also hold a full-time job.
The grouping election — why it changes everything
Meeting the two REP tests alone is not enough if you own multiple properties. Without a grouping election, you must materially participate in each individual rental property separately (typically meaning 500+ hours per property or qualifying under one of the other 6 material participation tests). For a landlord with 5+ properties, this is nearly impossible.
§469(c)(7)(A) Grouping Election
Electing to group ALL rental activities as a single activity means your combined hours across all properties count as one activity for material participation purposes. The election is made on the tax return for the first year you claim REP status, and is binding in future years.
- Married filers: only one spouse needs to qualify; the qualifying spouse's hours cannot be supplemented by the other spouse's hours for the REP tests
- IRS audit risk: the IRS specifically flags REP claims on Schedule E and looks for contemporaneous time logs, not reconstructed estimates. Keep daily logs throughout the year
- Common failure: taxpayers who have a full-time W-2 job and also claim REP status rarely meet the "more than 50% of working time" test — unless their W-2 employer is also in real estate
| Taxpayer profile | Real estate hours | Other work hours | REP status? |
|---|---|---|---|
| Full-time real estate agent, also manages 3 rentals | 1,800 hrs (agent) + 400 hrs (rentals) = 2,200 | None | ✅ Yes — 2,200 hrs RE, >750 and 100% of time |
| Full-time W-2 employee (2,000 hrs), manages 5 rental properties (600 hrs) | 600 hrs (rentals) | 2,000 hrs W-2 | ❌ No — fails 50% test (600÷2,600 = 23%) |
| Part-time W-2 employee (1,000 hrs), actively manages rentals (900 hrs) | 900 hrs (rentals) | 1,000 hrs W-2 | ❌ No — 900 hrs < 50% of 1,900 hrs (47%), and <750 is irrelevant here; also fails 50% test by slight margin |
| Full-time real estate developer (1,500 hrs), passive rental investor only | 1,500 hrs (dev), 100 hrs (rentals) | None | ⚠ Partial — meets 750-hr and 50% tests; but must also materially participate in rental activities (grouping election needed) |
The Schedule E net income, federal tax, state tax, NIIT, and net-after-tax figures above come from the rental income and expense amounts you enter—not a third-party feed. We total your deductible expenses, apply passive-activity loss limits when the property runs at a loss, stack net rental income on your other ordinary income for marginal federal and state tax, and add the 3.8% Net Investment Income Tax when MAGI exceeds the threshold. Below are the formulas, the order we follow, and worked examples you can check by hand.
Formulas
| Line | Formula |
|---|---|
| Total Schedule E deductions | Mortgage interest + property tax + insurance + repairs + depreciation + management + other |
| Net rental income | Gross rent − total deductions (negative = loss) |
| Passive-loss allowance | Up to $25,000 of rental loss deductible against ordinary income if you actively participate — phased out $1 for every $2 of MAGI over $100k ($50k–$75k for MFS) |
| Taxable rental amount | Profit: full net rental income · Loss: −allowed passive loss (remainder carries forward) |
| Federal tax (marginal) | tax(ordinary income + taxable rental − standard deduction) − tax(ordinary income − standard deduction) |
| State tax (marginal) | state tax(income + taxable rental) − state tax(income) — plus NYC city tax if applicable |
| NIIT (3.8%) | 3.8% × lesser of net rental profit or (MAGI − NIIT threshold) |
| Total tax on rental | Federal + state + NIIT |
| Net after tax | Net rental income − total tax |
Order of operations
Total Schedule E deductions
Sum mortgage interest, taxes, insurance, repairs, depreciation, fees, other
We add every deductible expense you enter on Schedule E. Depreciation is a non-cash deduction—typically straight-line over 27.5 years for residential rental property—but it reduces taxable rental income the same as cash expenses.
Calculate net rental income
Net = gross rent − total deductions
Positive net income is rental profit. A negative number is a rental loss. Losses are generally passive and subject to special limits unless you qualify as a real estate professional.
Apply passive-activity loss rules
Allow up to $25k loss against ordinary income — phase out by MAGI
If you actively participate in the rental, up to $25,000 of loss can offset W-2 or other ordinary income. The allowance phases out $1 for every $2 of MAGI above $100,000 ($50,000–$75,000 for married filing separately). Disallowed loss carries forward. Real estate professionals can deduct the full loss.
Compute marginal federal tax
Federal tax = tax(with rental) − tax(without rental)
Rental profit increases your taxable income; an allowed rental loss reduces it. We use 2026 federal brackets and the standard deduction for your filing status, comparing tax on your other income alone vs. with the taxable rental amount included.
Compute marginal state tax
State tax = state(with rental) − state(without rental)
State tax uses the same marginal method with each state's progressive brackets. No-income-tax states show $0. New York City residents also pay city income tax on the marginal rental amount.
Add Net Investment Income Tax if applicable
NIIT = 3.8% × min(net rental profit, MAGI − threshold)
When net rental income is positive and MAGI exceeds $200,000 (single/HOH), $250,000 (MFJ), or $125,000 (MFS), an additional 3.8% surtax applies to the lesser of your net investment income or the amount MAGI exceeds the threshold.
Total tax and net after tax
Total tax = federal + state + NIIT · Net after tax = net rental − total tax
On a profitable rental, total tax is what you owe on the rental income. On a loss with an allowed deduction, federal and state tax can be negative—representing tax savings on your ordinary income.
Worked example
$24,000 gross rent, $80,000 other income, CA, single filer
$8,000 + $3,000 + $1,200 + $1,500 + $5,455 = $19,155 total deductions
$24,000 gross rent − $19,155 deductions = $4,845 net rental income
Federal (22% marginal): tax on $84,845 income − tax on $80,000 = $1,066
State (CA): marginal state tax = $441
NIIT: MAGI $80,000 below $200,000 threshold — $0
$1,066 + $441 + $0 = $1,507 total tax → $3,338 net after tax
| Line item | Amount |
|---|---|
| Gross rental income | $24,000 |
| Total deductions | $19,155 |
| Net rental income | $4,845 |
| Federal tax on rental | $1,066 |
| State tax on rental | $441 |
| NIIT (3.8%) | $0 |
| Total tax | $1,507 |
| Net after tax | $3,338 |
| Effective tax rate (on gross rent) | 6.3% |
Rental loss: $10,000 gross rent with $19,000 expenses — $9,000 loss, fully deductible at MAGI $80,000 → federal tax savings $1,980, net after tax -$7,020 (allowed loss $9,000).
NIIT at high income: Same profitable rental at MAGI $250,000 — NIIT 3.8% applies → NIIT $184, total tax $2,185.
Phase-out: $9,000 rental loss at MAGI $150,000 — passive-loss allowance fully phased out → allowed loss $0, $9,000 carried forward.
Constants we use
| Parameter | What we use |
|---|---|
| Passive-loss allowance (active participation) | $25,000 |
| Passive-loss phase-out range (most filers) | MAGI $100,000 – $150,000 |
| NIIT rate | 3.8% |
| NIIT MAGI threshold (single / HOH) | $200,000 |
| NIIT MAGI threshold (married filing jointly) | $250,000 |
| 2026 standard deduction (single) | $16,100 |
| Residential depreciation period | 27.5 years |
What we do not model on this page
We model a single rental property on Schedule E—not QBI deduction (§199A), self-employment tax on rental income, at-risk limitations beyond passive-loss rules, vacation-home personal-use limits, cost segregation or bonus depreciation, short-term rental material-participation tests, grouping elections, depreciation recapture on sale (§1250 unrecaptured gain), state-specific rental credits or local occupancy taxes, or multiple properties with aggregated passive-loss calculations. Active participation and real estate professional status are self-reported—we do not verify the 750-hour or 50% tests. For W-2 take-home with rental side income, use our paycheck or 1099 calculators.
- IRS Publication 527 — Residential Rental Property
- IRS Publication 925 — Passive Activity and At-Risk Rules
- IRS Topic 425 — Passive Activities — Losses and Credits
- IRS Form 8960 Instructions — Net Investment Income Tax (§1411)
- IRS Rev. Proc. 2025-32 — 2026 Inflation Adjustments (tax brackets)
Results are estimates only. Consult a licensed tax professional for personalized advice.
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Last updated: 2026-03-10 · Based on 2026 IRS rules and federal tax brackets · For estimation only; consult a tax professional.